Transcripts For SFGTV MTA Board Of Directors 20240713

You have a quorum. Chairman heinicke all right. We have a quorum. Obviously, these are unique times, as we could say. Given the Public Health recommendations issued by the department of Public Health and Governor Newsom and mayor breed have lifted the attendance of Board Members by telephone, directors rubke and torres will be participating by phone at my request. Caroline and others in the room here to assist with our City Attorney deputy City Attorney, susan cleavelandknowles. We will say, at the end, get through this together. I will ask Board Members to mute their phones. It sounds great right now, but if you want to speak, unmute the phones and let us know. For this meeting, we would like public to participate remotely about writing a question and contacting us electronically. Thank you for honoring this request. Going forward, we urge the public to write the board at mtaboard sfmta. Gov or calling 4154464470. That information is also on our website if you need that. We usually ask for speaker cards, but today, we are not going to use the cards to minimize the risk of contamination. Today, although there are relatively few people in the room, we would ask you to continue to practice social distancing rules that weve all heard. We will for you that the microphone for us and for you have been sanitized, and if you need assistance using the microphone, let us know. Lastly, there is a Hand Sanitizer dispenser over there, and we will proceed in these odd times to get through this as quickly as we can. We have asked staff not to schedule any critical items for the board, especially those that may require Public Participation because we want to make sure that people have a chance to comment publicly on things that may affect them. We know these are challenging times, so we want to thank everyone thats here. I particularly want to thank director tumlin, and with that, ill just say were grateful on behalf of the board for everyones cooperation and by cooperating with the mayors order to shelter in place. With that, we can proceed to the requirement of silencing the cell phones or other sound producing electronic devices. The next item is the march 3, 2020 regular minutes. Is there any Public Comment on these minutes . Okay. Seeing none, Public Comment on that item is closed. I will pause a little bit more on Public Comment for any obvious reasons, but i dont think we have any indication of Public Comment on that. So would the Board Members who are present all entertain a motion on approving the minutes . Move to approve. Second. Chairman heinicke okay. And ill call for a roll call vote because we have some directors on the phone. Clerk okay. [roll call] chairman heinicke okay. That item approved, we will go to communications. The board will not be discussing the anticipated litigation in closed session. Thats the only communications that i have. Chairman heinicke very good. That takes us to item 6, introduction of new or unfinished business. Okay. Board members, i will say in the order of new business, something thats never done, i drove here. I talked about this with director tumlin, so for those of you listening at home, if you are leaving your homes to go to an essential appointment or like, a doctors appointment or going to get groceries or taking some of the few essential tasks allowed under the order, please use it. This is the rare time were going toen courage that. By having fewer to encourage that. By having fewer passengers on Public Transportation, youll make it safer for fellow citizens who need to use Public Transit to use it more, enabling social distancing. So you wont hear this often from me, but if you have a car to get to Public Places that you need to get to, please use it to keep our fellow Public Transit passengers safe. Very good. Stay healthy, folks, and exercise. Director eaken has just told you two wonderful ways to do that in this wonderful city. Okay. Clerk directors report. Chairman heinicke director tumlin . Director tumlin the order that has ordered bay area residents to shelter in place specifically excludes transportation in part because our nurses and doctors and firefighters and First Responders still need to get to work and our residents need to get to Grocery Stores and pharmacies and doctors offices in our districts. Our operator availability was on average this week, and today, its almost normal, and our Incident Command Team is working nearly full stop. And despite the intensity of these last weeks, i really couldnt wish for a better team or a better job, frankly. Im incredibly proud to serve this agency in these times. So i want to give you an update on some of the key activities that weve been doing to respond to the covid19 disaster. Give a couple of additional updates before we move onto our full agenda. For muni, our priority is shifting service around to allow for social distancing among our passengers and also protecting our operators. So as many of you know, we have cancelled service on cable cars, the e and the f and replaced the services with bus lines. This is largely to protect our operators. On our regular buses and regular light rail trains, all of our operator cabins have a protective barrier to protect operators at this time. Weve had a dramatic drop off in ridership to the financial districts but the neighborhood district remains strong. Of course were continuing to clean all of our buses and trains nightly, were continuing to scrub down all the high touch areas in our stations four times a day. Were increasing midday cleaning of the vehicles at the end of lines, and were accessing all of the usual Health Protocols about not riding while sick and sneezing into your elbow and so on. On the parking side, were also adjusting all of our parking rules in order to focus on measures that maintain Public Health, public safety, and the accessibility of services. So this means any parking regulation having to do with health, safety, and responsibility is enforced. It also means continuing to enforce parking meters in order to allow people like director heinicke to drive to get to the Grocery Store or the pharmacy or other essential services and to keep the Parking Spaces available in our neighborhood commercial districts. Parking enforcement is temporarily suspended for residential parking permits, for most peak hour tour way and for parking more than 72 hours in order to accommodate people who are sheltering in place. As you know, this is a constantly evolving situation. We are trying to make adjustments as we learn more information, and you can always go for the latest information at sfmta. Com. I also wanted to update you on central subway. Back in february, when you approved the modification for central subway, we submitted to coming back today to give you an update. Unfortunately, im sorry to report that staff have been otherwise distracted, and our contractors are being impacted by construction worker available issues. We know this is essential information, and we will have an update for you at our next scheduled m. T. A. Board meeting. I also wanted to let you know in addition to the ongoing conversations at these meetings, we are having a public open house that will be entirely online this thursday from 5 00 to 6 30. You can get more information at sfmta. Com budget. We will also be hosting a twitter town hall on april 2. Finally, this is interesting that this is happening at specifically this time, but tomorrow is transit operator appreciation day, and i could not imagine being more appreciative of our transit operators right now than ever before, so we have stickers i guess i should have cut these up beforehand so i didnt actually have to hand them to you. We will give you properly sanitized stickers to show your appreciation. Chairman heinicke that concludes your report . Director tumlin that concludes my report. Chairman heinicke is there any Public Comment on the phone to director tumlins report . Seeing no Public Comment, Public Comment is closed. Vice chair borden . Vice chair borden i would say in my neighborhood, the mission, a lot of people still riding the bus. I see it well into the evening as well as in the day that the buses are quite busy, and the people, this is how they get to work. For a lot of employees, i cannot understate how significant this crisis is for them and their livelihood. Chairman heinicke yes. We will consider that in our decisions moving forward. Jeff, how long have you been on the job . Director tumlin 100 days . Chairman heinicke i think for anything like this to hit anyone else it would be devastating, but working with you, especially over the last couple of weeks, you have hit the ground running. I will thank director eaken, borden, and torres for bringing you to us. Your honor born for this. Next item. Clerk okay. Next item is the mayors report, and i dont see anyone, so today, we will not have the report. Chairman heinicke is there anyone who wants to comment on that today . Great. Next item. Clerk consent calendar. These items are considered routine unless a director wants to sever any items, in which case, it will be treated as a regular agenda item. Chairman heinicke is there anyone that would like to sever any items . That was directed to our secretary. Seeing no motions, i will entertain a motion from one of my fellow Board Members here in the room. Move to approve the consent calendar. Chairman heinicke okay. May we have a roll call vote on this, please. Clerk yet. [roll call] yes. [roll call] chairman heinicke very good. That item passes. Item 11. Clerk item 11, procurement of new light rail vehicles with simmons mobility to enhance the vehicle with comforts and to enhance phase two production and acceleration activities for early fleet replacement for an amount not to exceed 43,414,056, with no increase in price and no increase in the term of the contract. Chairman heinicke all right, miss kirschbaum. Thank you for your time today. I will try to keep it brief, but i am here because weve reached a critical milestone for the lr4 project, and i believe theres a need to proceed with the phase two. We had intended to initially bring this contract modification to you last spring, but we had a series of issues that raised concerns for both staff as well as this board to proceed. Weve learned a lot over the intervening months and i think are back on track to deliver a really great train. I think thats exhibited most strongly in the mean distance between failures which reached 22,000 miles between february. Our expectation is these will meet 25,000 miles and will stay there for at least six months as part of the contract, and we are holding retention on the vehicles until that milestone is achieved, but it is a far cry from our floor, which is Something Like 3,000 miles between failures, so were really seeing strong performance, and as we continue to see bradas break all over the route, this is a big adjustment. The biggest failure was the hydraulic brake adjustment, which was preventing us from moving vehicles. But weve had a series of issues, and almost all have been addressed or are in the process of being addressed. As weve brought on more vehicles and addressed some of these fleet challenges, we have seen more and more of these vehicles in service, particularly on the weekend. Youre probably seeing mostly lrv4s at this time. These are our best vehicles, so when we can use them, we do, and weve doubled their mileage over the last year. We are still only seeing about 48 to 50 vehicles available a day, and we hope to get that up to closer to 55 or 56, and the reason for that is we still have three vehicles that we have not purchased yet. The original two vehicles that have had these testing plus as seen in this photo here, we also have one vehicle that we hadnt purchased yet that siemens borrowed heavily from to keep the vehicles up and running. Plus, we have six vehicles whose wheels have been flattened so much that we can no longer true them up, and we need vehicle replacements. Our goal is to do about one per month. And then finally i wanted to give you an update on the shear pin issue. What we determined after they outfitted a coupler with very sensitive sensory information is that we found at our intersections where we have half the train on a hill and half the train on a flat intersection, the shear pins are experiencing about ten times the force that the subcontractor anticipated when they designed the vehicle. This is part of being a historic system. We would not design a rail system today with very flat intersections and very steep grade, but siemens committed to meeting our operating environment, and they are on track to get us a solution to this problem. In the short time, they continue to pay for the pin replacement and installation moving forward. And then, one additional issue that i wanted to flag for you and it is related to the new trains has to do with the integrations between the lrv4 and the pantograph. Were seeing excess wear and tear in these locations. We also simultaneously equipped an lrv4 pantograph with a camera and a ruler. And without knowing where the locations are, the locations that they identified where the pantographs were getting compressed actually matched onetoone where we were getting excess wear and tear. Its not unusual to get these types of issues. The bradas pantograph is designed to compress even further than the 122, but it is a system issue that we do need to address. In the contract modification, theres two primary costs. The first, which we discussed in november, when you approve modification six, when you approved the brada replacement to shave off about six months off the timeline, and the second is to invest in the seats to do all of the changes that we reviewed and agreed on. We have essentially completed the track breaks except for a if you remaining vehicles, and then, one issue that is not in this mod seven but that we are making Good Progress on is the monitors. We are using the monitors in place of mirrors that are much larger and have better visibility. We have a product that we all like, and were just in process of doing proof of concept. It wasnt ready for this package yet, but we still need to work through all of the design details. And then, finally, in addition to the brada and the track changes and the seat breaks, there are a couple dozen miscellaneous changes that were doing that is based on feedback from operators, from mechanics, as well as from the public. So if youre starting production, and you want a blue button instead of a red button, those are design changes and have costed associated with them. Costs associated with them. Chairman heinicke julie, can i ask you a question. For the four directors participating by phone, there is a bit of a lag, so if you could indicate which slide youre on, that would be great. So i am on slide 15, indicating the major traffic drivers in slide 7. Chairman heinicke thank you. So we are now on slide 16. Thank you. Slides 16 through 18, im not going to take time to go through each item, but they do describe all of the items included in this change order. They were also outlined in your packet, and then slide 19 includes the overall funding package, which is approximately 1. 1 billion. So with that, the action that were asking today is for approval of the task order. It is critical to maintain our position in the pipeline and to get our phase two vehicles underway, and im happy to answer any questions that you have. Chairman heinicke okay. Is there any Public Comment on this item, item number 10 excuse me, item number 11. Okay. Seeing none, item number 11 is closed. Directors, any questions from miss kirschbaum . Directors on the phone, if you have any, please say so. Caller this is director hemminger. I have a question. Chairman heinicke please, ste steve. Caller this is the cost for all of the vehicles, and i assume were just asking for a portion. Thank you for the clarification. This is the funding for the entire project, and todays action is on just the task order seven, which is, i believe, about a 50 million task order that incorporates all of the changes that we want to make to phase two that you didnt previously approve as part of task order six. Caller and just in the future, julie, it would be helpful to me to show how much of this funding has been secured. For example, the regional measure three money, i know, is held up in litigation, and its sitting in escrow. So its not immediately available, and i dont know how many of these other sums have either been secured or are hoped for, but it would be helpful to see that whole picture when were allocating funds and not knowing whether weve got it all in the bank yet. Absolutely. Wed be happy to provide that. And even where were relying on measures like regional measure thre three, we either have contingency plans or theyre far enough out into the cash flow pipeline that we have some confidence in them, but understand that we will absolutely indicate where theres funding uncertainty. Caller thank you. Chairman heinicke any other callers on the phone have questions . Okay. Thank you. One oh, director eaken. Director eaken i have one question. Regarding the seating arrangement on the two different designs, one which has more sitting space, one which has more standing space, just, like, something to think through, are these going to be scattered throughout the system, or are we going to deploy trains that have more standing space through the higher traffic corridors where more standing space is required or just as they come online . I think thats something well have to look at when we get closer to determining what the route is, but i think well have to look at the different demands, what they are. Chairman heinicke very good. The new trains coming online will have the ability to receive communications from Central Command or elsewhere while deployed in the system. In other words, if we have to make a system announcement, which we will, it will not only go to the stations, but it will go to the new trains if Central Commands so chooses. Is that true . Its two different communication sources, but yes, we will have the ability to make centralized announcements. Chairman heinicke okay. If there are no further questions, can i have a motion caller i have a question. Chairman heinicke director rubke. Caller thank you. Just following up on the funding plan. Theres two different places that reference the iraf funding, and im just wondering in two different places, its referencing at sscf eraf, and then another, its sfmta eraf. Can you just articulate the difference . We would be happy to follow up, but i believe those are two different fiscal years with different allocation. Chairman heinicke very good. Okay. Any other directors with questions . If not, ill entertain a motion on item 11. Ill move to approve item 11. Ill second. Chairman heinicke okay. May we have a roll call vote on that, please. Clerk yes. [roll call] chairman heinicke item 12. Clerk item 12, admitting transportation Code Division two to establish a transportation only lane on townsend street and eliminating more Parking Spaces on townsend street. Chairman heinicke okay. While were waiting for this presentation, i will note that we have received significant Public Comment on this item. Please. Directors, steve bolin from transit planning, and im here to talk to you about a plan to reduce transit delay at a strategic location, and that is townsend and third. This is really the last piece of a larger project to optimize our buses through soma. At third and townsend, the location were discussing today, there are up to 20 buses per hour. Thats about one every three minutes. Its an extension of the muni four project. Wherever we do implement a muni four project, we continue to observe and evaluate, and were always on the lookout to improve transit service, and thats what were doing today. Just a quick note, this is not one of the legislations included in the quick build that you just approved. It doesnt include colorization transit lanes, but this is a huge project, a bypass lane, that would be covered Going Forward under the quick build program. All right. Next slide. So this proposal does one primary thing and a couple of secondary things. The main thing is create a leftturn lane for buses only at a place where buses are regularly delayed turning left. This is also at the start of busy routes, so delays here are felt by riders all down the line. The proposal does two things. It improves availability to caltrain, and two, it moves cyclists out of the door zone into the curb where cars cannot turn right, greatly reducing conflicted. This is just a view of third street at townsend. As i said, this project is really an extension of that one, based on ongoing analysis of transportations in the corridor. Next slide. And here is a view of townsend showing the existing and proposed lane striping. As you can see, we are proposing a second leftturn lane only for buses. I ing this will be to the right of autos. [inaudible] and this means the bike lane will be along the curb on the approach to third since third is oneway northbound, cars cannot turn right at this location from eastbound townsend, and that should more or less eliminate contests between bicyclists and vehicles at the intersection. This is the other end of the block of townsend between third and fourth. Just to be mindful of the directors who are on the phone, were on slide 7, if you could state the slides when you get to them, that would be helpful. Yes, sir. Slide 7. This is where we currently layover routes 30 and 45. This has always been a constrained location for us going back decades, and by removing a few more spaces from the parking garage at the end of the safeway entrance, we can use the current layover spot as a layover spot for route 30 riders. Next slide, last slide, slide number 8. So finally just a few words on process. While this is a relatively minor project, we did conduct direct outreach to neighbors, and we made a few accommodations to accommodation trash pick up at the beacon and garage access at the apartment on third. If you approve the project, we hope to pursue with implementation within a couple of months, although that timeline is delayed by a few months for outside reasons. Im hayden miller. I just wanted to say that moving the 45 terminal, theres already not a great operator rest room situation at caltrain for the 30 and 45 line, so moving it further away from the caltrain station, where i believe the operators use the rest room, especially during rush hour, they dont have the longest, like, Recovery Time there, so it seems very inconvenient for the operators to have to walk further to a not very clean bathroom in the first place. All right. Thank you, mr. Miller, for being down here to stick up for our operators. Chairman heinicke is there any other Public Comment on item 12 . Director tumlin, would you care to address that comment or director tumlin i was just trying to look to see. I know were doing a whole bunch of changes at townsend for operator facilities. Thats correct. So the shortterm solution is were currently looking to add a portapotty at the creamery, which is on the northwest corner of townsend. There are two rest rooms available to operators at this location, and theyre problematic. Caltrain can have problems with sanitation. We have a rest room task force, and this is one of the locations that theyve been looking at for a long time, and were working on some longer term solutions, as well. And i realize these changes arent taking place tomorrow, but if there was ever a time that were looking out for our operators needs and their ability to wash their hands and be sanitary, it is know. I trust that you will work closely with our unions to address this issue. Okay. Any other Public Comment on this item . If not, i will entertain a motion. I have a motion . Chairman heinicke absolutely. Just a question. I dont know if you can put up the scheme with the double left turn. Just have a question with the pedestrians chairman heinicke just for our callers, we are on slide 6. Just speaking of the experience with the pedestrian in the double leftturn lane. If you could tell us about that . Yes. So this is an issue that we identified early on in project development. We are looking at some changes to the signal timing . Were not currently doing it so i didnt mention it today, but one of the options was to do as fully protected left turn thats followed by a brief phase at the end. We are looking at that. I have concerns about sometimes were going to have a bus in the righthand lane, so youre looking at doing a protected phase for we are. And is that funded by this phase of the project . Well, the signal change wouldnt cost anything necessarily. Its not a physical change, its effectively a software change. Yeah, okay. So you can come back to us with an update on that . Wed be happy to follow up. Okay. Thank you. Be a perfect time to follow up on the rest room situation, too. Excellent. Okay. Anything else, directors . Anyone else on the phone with questions . Okay. Seeing none, ill entertain a motion on item 12 . Move to approve. Ill second. Chairman heinicke okay. May we have a roll call vote, please. Clerk okay. [roll call] clerk the motion passes. Chairman heinicke boy, he casts those votes like someone who is in the state senate for a while. Item 13. Clerk approving the issuance and sale of transportation and road improvement general Obligation Bonds in the amount of 134. 3 million to fund costs associated with Capital Projects. In this case, i am your transportation 2030 Program Manager today, and we are recommending that the board approve our third general Obligation Bond. In november 2014, the voters of San Francisco passed the first transportation general Obligation Bond in nearly two decades. We have slowly been working to sliver 500 deliver 500 million of improvements to the people of San Francisco. In 2015, we had our First Issuance of bonds, and followed up with that three years later, and today, were following it up with an additional 134 million issuance of bonds. The only thing i would say with regard to this particular item, you can see that the period of time between issuances continues to decrease, so the period of time between the first and second was three years. The period of time between the second and this one is down to two years. Over time, we have learned to become better and better at delivering this time of project and g. O. Bond obligation projects. These are all large projects. Theyre all 10 million projects. Theyre all shorter. Theyre all at the end of Detailed Design phase or in construction, and in addition, we have borrowed from our sister departments in adding a g. O. Bond overall programatic to allow for any contingency in the projects. So with that, were asking for the approval of the issuance today and support for the appropriation ordinance at the board of supervisors which will be introduced later this month. Chairman heinicke very good. Any Public Comment on item number 13 . Okay. Seeing none, Public Comment is closed. Directors, any feedback or questions for jonathan . Anything you want to add . Its almost going too quickly. Ill entertain a motion on this item. I just have a question. How much money do we have left to spend . I believe after this one, its about 180 180 or 190 min left. There are a few projects. That would be Market Street, the canopies delivered by b. A. R. T. , and i believe we would have a little bit for the caltrain electrification project, so this completes all the projects by the m. T. A. Caller mr. Chairman, this is steve. Can i ask a question . Chairman heinicke yes. Caller it appears that this g. O. Bond issue has to be approved by both the board of supervisors and our board, but its an obligation of the general fund of the city and county. So whats the origin story for why the m. T. A. Board approves it, too . So he asked two questions there. Okay. Very good. So in this case, the m. T. A. Board approves the programming of the general Obligation Bond, so within that 500 million program, its within your authority to decide how those funds are allocated to different projects. Since this is the citys general Obligation Fund program, we are required to take it both to the citys capital plan committee, which we can monday, and they supported it, and the actual appropriation of funds, which happens by the board of supervisors. Oka. Caller okay. I guess the comment i would have for you, jonathan, is i would challenge these bankers to bring this in on a negative rate. People ought to be paying us to buy our bonds these days. I will pass that onto the office of public finance. Chairman heinicke okay. Director hemminger, i assume thats a director and not a condition for the addition of your vote . Caller thats correct. Ill move the presentation. Chairman heinicke okay. Is there a director whod like to second it . Second it. Chairman heinicke okay. Any other directors on the phone or present have questions for jonathan or director tumlin . Seeing none, can we have a roll call vote on this, please . Clerk yes. [roll call] chairman heinicke thank you. And director tumlin, you have what you want. Now item 14. Director tumlin thank you. Every source of revenue for the sfmta fares, parking, fees and fines, all of the contributions of the general fund including sales tax and hotel tax and a variety of other commercial taxes are all declining rapidly and for an unknown period of time. Nonetheless, it is essential that we move forward as we consider the necessary changes well make to economic reality. Of course we need to confront the economic reality to the agency but also the economic reality of san franciscans. As we stated repeatedly, the only statement of value for any city agency is its budget. With values as a starting place, its easy for us to make adjustments as we go on because we stand in principle. One of the questions we will need to face is do we cut fares or do we cut service . That oversimplifies the challenge, and as the budget team will present this afternoon, we are doing a lot to try to improve efficiency in this, but we know we still have a gap. Id like to also remind you that we are grateful for the public who has contributed hundreds of comments online. As weve tried to move our public processes online, we also have many comments from the Community Meetings that we han before the covid19 ran before the covid19 situation got as extreme as it is. Those were forwarded in your packet, and i trust that you are taking them all as seriously as we will be. Chairman heinicke we are. Given your wind up, its obvious to us and anybody watching on television, this is an important notice. I would ask that you read item 14 so that its clear what were discussing. Clerk item 14, presentation and discussion on fiscal year 2021 and 2022 operating and Capital Budget including use of the contingency reserve, proposals on fare policy and pricing, authorizing sunday and evening parking meter enforcement, and service changes. Thank you, chair heinicke, and director tumlin. Im leo levinson, chief Financial Officer for the m. T. A. I just want to say that we recognize these are unprecedented times. Much of it was formed before the covid19 situation and the changes that it makes to our operations and our Revenue Sources. We are also keeping track where we stand in the revenue shortfalls. So what that means is we have a constantly changing budget situation. Director tumlin says we still need a base lynn and a Reference Point baseline and a Reference Point, where we will expect to be after this emergency is over, and where we stablize in a new situation. So i want to say that the commitment of my entire team to you is that even as we review and create a budget under a time of creating resources, we will be watching that budget extremely closely, and we will be returning to you with a better situation, and make sure that we manage this Agency Within the context of its resources and do not allow some dramatic surprise where we have been spending outside of our resources without your knowledge. And so with that context, i want to turn it over to jonathan, who is our seen i dont knower senior budget analyst. Thank you, directors. Jonathan brewer, senior budget manager. I am going to do my best to go as quickly as possible but refer to the budget points for the members that are joining us remotely. I am on the cover. We are proposing our fiscal year 21 and 22 budget. Let me start by saying this process is completely new and different, so you would have noticed this is something new and different. We are consolidating the operating and Capital Budget, noticing that were shifting them back and forth, and the cost of operating our system impacts it daytoday. We will be talking about what we went through today. We will have an updated k consolidated budget that we bring to you later. Im on slide 4. As director tumlin noted, the core of our budget proposals today were a reflection of the agencys values. Its our ultimate goal. Where we put our money should reflect the values of the agency, and we fell todays proposal does that. We started on slide five with an operating deficit of 66 and 77 million. That is part of a structural deficit or structural imbalance that was projected in fiscal year 25 to grow to 165 million. Our enterprise revenues or the revenues under the control of the m. T. A. Have been flat, were declining over time. That makes us more dependent on the general fund that was in 8. Those are things outside of the control of the m. T. A. Board, but you will see today that as part of the budget of fiscal year 21, those are a growing part of the m. T. A. Budget. We did run a recession scenario. I do want to note for the audience and the board that just a revenue loss of 25 million can impact and result in a Service Reduction of 5 to 8 . So you can get a sense, when we talk about 25 million of revenue, how much of an impact that has. On top of that, we have seen our Capital Needs grow. In september, m. T. A. Approved a change to our capital plan. On slide 11, we get into the specifics of where that is. Two of the areas that grew the most were in Traffic Signals and signs, and that has to do with the state of the economy and the fact that it costs us 300 more to do a traffic signal project than it did a few months ago. We have done a lot of the low hanging fruit, but some of the projects that are proposed over the next five years are significant street reconstruction projects. The capital plan reflects the cost of implementing those over a 20year period, which was part of the reason we saw the increase that we did. At the same time, our capital revenues are declining, so you see the last three fiveyear Capital Improvement programs. I will state in the current c. I. P. Again, a lot of the projects that we were doing on the street were smaller but larger impact to the city, so again, the number is going to be smaller, but the impact is going to be greater. At the same time, our deferred capital costs and our deferrals over year are continuing to grow. To remove the backlog on capital assets, would cost 756 million per year, and you will see that our backlog continues to grow, currently projected at 3 million. So thats where we started, and this is what we were trying to address. The budget was trying to address to that and how we could come up with responsible and strategic investment. This slide shows the investment that weve done to date, and as director tumlin has noted, we have gotten a ton of feedback on various proposals, and i can report that we took that feedback that we received from you and the public and it is integrated into the proposals that we are putting forward today. Noting that we are doing this, and we knew this in january in an uncertain economic future. I would stress while this budget, it is aspirational, but it is conservative at the same time. So now, we will get to the updated proposal. So first, equity was a clear lens across everything we looked at on the investment side, and even, to some extent, on our parking policies. This is what we presented to you in january, and the dollar amount, i. Amount, we got a lot of feedback about who should be paying and whether or not the agency needed the resources. As director tumlin noted, we do need the revenue. It is needed to stablize and provide Excellent Service to san franciscans, and any reduction results in a reduction in the services that we provide to the public. Youll notice the proposals, we recommended all of those move forward, and those have been included in the budget. We have proposed two different options for the board to consider, and today, we hope to get feedback on this. Again, taking an equity lenses, we have two options, the equity monthly option, and the equity clipper option. The position of the budget, we have budgeted or assumed the equity, but the differential is not substantial. Its within a few hundred thousand dollars. The equity monthly option keeps the cash fare at 3, keeps the electronic differential where it is per policy now, at 2. 75, adds free muni for youth, and that is all youth across San Francisco. I will say that a lot of the feedback we got, especially from the San Francisco youth commission, was around this particular program. And while there is a cost associated with it, the 2 million we reported to you during the workshop, theres also costs that we dont see, i. E. , the cost of fare evasion, the costs associated with the program. So when you really think about it, we will be able to direct a lot of those resources towards actual fare paying customers and actually doing enforcement. Again, from a fare paying lens, children in San Francisco, this is probably a good policy call. Chairman heinicke i will say there is another intangible cost, which is creating a future barrier to future transit riders. I will say this, particularly for folks who this is an accessible system to all young people, and what it will mean to all future san franciscans. There is also free muni for San Franciscos experiencing homeless san franciscans experiencing homelessness. This is something we had mentioned during a part of the workshop. So we increased the cost of the monthly passes a little bit more than would be allowed in the standard indexing, so that is how we get to netzero in this proposal. This was our attempts to listen to the public, be more strategic as to who we were charging, why we were charging them, and again, taking kind of a note from you that we want to believe in San Francisco and believe that people will use the fare media and participate in the system appropriately. The fare clipper is slightly different. The only difference, which is on slide 19, is we essentially index up the monthly passes, so in this option, the monthly pass, we keep at a more reasonable cost, the cost is passed onto the electronic tagging at 2. 80 and 2. 90 over the next two fiscal years, so we keep it, but we shrink it. Chairman heinicke the big picture that youre presenting to us for direction, is assuming the board is agreeable to the various items that you started with, keeping the cash fare flat, extending free muni to all youth in the city, then, how do we fund it is . Do we knock up the monthly pass a little bit or increase the monthly pass or do we close the gap on the clipper differential while, nevertheless, keeping the clipper differential, while encouraging people to keep a clipper® card. Is that a fair summary of what were saying . That is a fair summary, and allows me to talk about this. This is still a fantastic value when you base it on what it costs you to break even, so youll see a comparison of m. T. A. At current rates compared to transit agencies across the country. And even with the equity clipper, we are staying below that 35trip mark that we hold ourselves accountable to, but the monthly pass is still a great value for the rider. So that was the changes on fares. This is just the dollar differential, depending on those changes on slide 31. But again, for the board, its essentially even between standard indexing and the two equity proposals we gave you. Again, equity monthly is the one that is currently in the base budget as a cost, but therell be minor changes, depending on which options you choose to go with. Now to parking policy, so again, some feedback and thoughts and consideration how we would implement moving forward with sunday parking and extended hours in commercial corridors across the agency. Again, the goal is to manage demand and not make money. It is good for the community and for our Transit System if we can continue to have people to cycle through after 6 00 p. M. The estimates we gave you during the board workshop in january were an extensive range. We have since revised our proposal, and we are proposing to go kind of a steady state implementation, working with specific corridors and neighborhood groups and merchant groups, so youll see theres a general uptick in revenue. We are on slide 23, and this is what we have priced into the budget for these years, so assuming youve made the policy decision with regards to these hours, the amount of revenue in the budget has to do with the amount of time we think it will take to appropriately implement the policy. Now to talk about the tope proposal, i will turn it over to leo since weve had a lengthy conversation since we last met. Chairman heinicke excuse me. This is slide 24 . This is slide 24. What it shows about half of all tows are related to towaway zones or where the car is blocking some activity construction, special event, or yellow. The abandoned driveway, and the interesting thing is the five or more citations or expired parking is about 17 , for what thats worth. This provides some context. What we did, similarly to the fares and again, listening to the Public Feedback and your feedback in our last board presentation, we wanted to reflect two different equity focused adjustments to our tow program. As we mentioned, our tow program is very costly to administer. It does, in fact, with all of the costs included, has been costing more than the revenue that is returned by the program. The two options before you, the option one reflects the first equity option presented at the last Board Meeting which did include a new lower 100 fee, and then increased the firsttime and wirepeat to com closer to meeting the cost of the tow for the first time. Weve also shown on the slide the first time comparison fees, as well. There is a lot of discussion of difficulty of people experiencing homelessness having an option to meet this, so what we have proposed is a zerodollar fee for people experiencing homelessness for one time. They still feel there should be a strong disincentive for people to repeat that level, so this would be a onetime zero fee for both either boot or tow, and to reduce the lowincome fee to 100, again, reflecting that impact on that population for tow. In order to keep that at the same level of cost recovery, this is proposing to reduce the firsttime toe differential to a flat 50 as tow differential to a flat 5 as your firsttime discount, so wed be happy to hear your input for this program . I ju rather than just proposing a proposed cost of living increase across the board, you looked at who was experiencing all of those. We also listened to the experiences of people who have been forced to live in their vehicles and to contend with the rapid changes in San Francisco economy and to minimize the impact on people with the greatest needs while at the same time doing heroic work for closing the funding gap. Jonathan . So we will ask for a phase today from option one to option two on the tow policy. Director torres had asked if we had looked across the agency, and we had. We were able to realize 4 million savings on labor that were reinvested on other resources within the agency. We did actually look at additional services. Rider sh ridership has been stable or flat, to the recommendation as part of this budget is to discontinue this service and use the operators time throughout the rest of the system. Youll see the service here, which takes you chairman heinicke and sfgtv, we are on slide 27. And now im moving to slide 28 with regard to making this service change. We looked at efficiencies, we looked at cost savings across the organization, and those are within the budget that were showing you today. So kind of one of the last areas that we discussed at the board workshop was the use of the agencys balance [inaudible] we must replace the parking meters, so that is being maintained as a recommendation. We are shifting ongoing revenues to the operating budget as part of this process. We did need to do a onetime backfill of Capital Projects to make those projects whole, which is the 10 million there, and then, i constantly come to the board talking about operator rest rooms and keeping up our 100yearold facilities, so we have continuously appropriated funding for our maintenance facilities across the city. So as the Current Fund Budget proposal for the next two years. As i stated on slide 32 here, we started with a deficit of 66 million and 77 million. The asks over the twoyear period, ongoing costs, were around 90 million, so that would have been a 167 million problem to solve. All of the departments went back and revised their asks, the Public Feedback and board feedback that we received at the prior workshop. You can see our previous requests. The march 2020 column on slides 33 are the costs that are recommended to be in the budget. We could not afford the maximum requests that divisions had. We were clear about it, but we were able to include Strategic Investments to move a lot of these various elements forward. This includes funding elements of the Muni Working Group, making sure that were ready to open the central subway, including the staffer supervision that is required out on the street, the 9139s, vehicle Maintenance Positions as we have a new fleet and about to go into our first midlife overhaul on the new 40foot fleet, and also critical maintenance of way and other positions necessary for the maintenance of the subway and our fixed guidance infrastructure. So we went through a process to determine when these items were needed. So this is really funding the bare minimum that we need to stablize the existing service. Yes. The things that were not funded, to be clear, we did not fund the 6 and 6 poi. 5 servi expansion. That is not included in the budget. There are 50 other staff positions that we could just not include. A lot of them, julie spoke about, the support that we want to continue to provide to the operators. So while there is line and daytoday service supervision, we want to also, at some point, make sure we have the resources to include that support structure that the operators need. And then, there were other positions related to maintenance and subway maintenance that we could just not fit in the budget. So i want to be very clear about what we could not get, and this is it. Another key element is chairman heinicke do you have a question about that . Ill let you finish your presentation, but id love to hear particularly around the transit stuff ill speed through. The next one is i. T. Related support. The network infrastructure, the maintenance of the systems, and a lot of these projects that were funded as Capital Projects, after we implement these systems with onetime funds, we need the staff in place to make sure that we maintain them and they function. A lot of this was a large ask, 15. 6 million, this was stablizing our Technology Infrastructure to make sure that we can move into the next generation of system managem t management. This is just keeping the existing systems running. Im sorry. Im trying not to interrupt, but since you do that, is this an area where there are funds innovation or any type of funds that we can tap into, grant strategy programs . We did fund a lot of these programs and infrastructure with onetime funds, but to keep them going and paying the Software Licensing fees, but the bill has come due, so weve done our best to keep that Going Forward. Slide 27, we were fluctuating between 44 and 66, and we went with 66. That has been fully funded in the budget. We do anticipate that largely this cost will be offset by the p. C. O. S doing their business, so that was why we felt fully confident with that ask in the budget. Both the board and the delores blandin report have several asks, and those are in the requisition and included in the budget. Muni request, the original request was 17 positions. We got overwhelming Public Feedback about the positive impact of this program, so 20 positions have been included in this budget. Vision zero education was also a high priority, so we are funding onetime service and supply needs for both the safe routes to school and Vision Education Program and bumping up the staff just a bit to help do the appropriate outreach associated with that. We heard you loud and clear when you said we must fund kimberly ackerman, so her request was fit in. As director tumlin said, the target is budget investment. Its not to get to where we wanted, or where we want to be, but it does set a foundation to do those in the future, which is slide 32. So now its the nerdly part of the presentation. So nerdy part of the presentation. The largest m. T. A. Operating budget has since existed at 1. 3 million and 1. 34 million in fiscal year 22. Im just going to show you heres where we stood revenues wise when we bought it to the board. Youll see this minor tick up between slide 35 and slide 36 showing the revenue adjustments in 2,019. This is where it gets nerdy. You see we bumped it up with the final policy adjustments that you would approve, hopefully, when we get to the budget approval in april. Here it is by source, so youll see the general fund, again, is our highest contributor to our overall budget. Parking traffic season fines is the second largest. Operating grants from the state, largely transit assistance, transit fares, as well. Getting to a balanced budget. Salary continues to be our number one expense and continues to grow to be a large part of our pie, which well have to continue to start thinking about. These are, again, the requests that were in the budget so im not going to cover that again, on slide 50. So get to a balanced budget, we also covered this at the board workshop on january 28. So we made it very clear that we want ongoing sustainable revenues going to ongoing operating costs. We really heard the feedback from the board, so we will shift 30 million of our proposition b general fund setaside. This is Population Based from capital to operating. So we are able to do that in the next two budget in the budget cycle, and we have assumed in our fiveyear financial plan, we will continue to do that. We were able to backfill the project impacted with onetime project impacts with onetime Development Fees that we have now. There was no project impact in the next two years, but it does take a stable source of capital away from the Capital Budget ongoing. We now have one month of the t. N. C. Tax. We are estimating about 10. 8 million in revenue from that program, so youll see the 11 in fiscal year 22. In fiscal year 21, it says 16, because were collecting a halfyear projection. [please stand by] in those years we have gotten more than anticipated. I can reported while we cant on Planning Department projections that dont come in perfect, we have the 25 million in cash now from Higher Development impact fees in prior years. It is okay to approve this. It is out of projection what should come. We have enough in cash to cover that amount in fiscal year 22. That is a onetime source. We shrunk that as small as we could. That is recommended for fiscal year 22. We have the use of the fund balance at the lowest levels we have used in the current fiscal year we have 30 million in fund balance. This is a much lower amount than you have approved in prior years. I am not going to slide 52 again. It is a sum of the things in the budget. Slide 53 shows now the change in our five year financial forecast as a result of all of these policy changes and what we are recommending. We close the structural gap, as you would expect. We must have a balanced budgeted in fiscal year 21 and fiscal year 22. Our costs are growing faster than revenues. If we include the proposition b, 10 million impact fees, our costs will come right back. While the structural deficit is less, it is still something that requires another Revenue Source for us to resolve or we will just constantly be in the cycle. There will be a point where we will not additional expense. As the director said we have no choice to consider what we have to reduce. Is that based upon before this last few weeks projections . Yes, it is. Just quickly on the five year Capital Improvement program on slide 56, the board does also approve the five year Capital Improvement program, fiscally constrained capital projected. Here are the various programs. Transit optimization is one of the largest capital programs. On slide 58, you will see the sources we did include in the five year cip. We do assume a certain level of grants. Regional measure 3 to a period where we can get it. It has been included. 15 million for vision zero is in proposition d. We hope to get a state grant related to light rail vehicles and other Capital Improvements. That is pending with the state. We get regular formula funds through m. T. C. Which is in the capital program. We did not include the second giobond. We are starting the planning on how to use it. Proposition k reauthorization would additional sales tax. We are holding in the back pocket the ability for an additional revenue bond. We are not recommending it in this budget. If cash flow requirements require a revenue bond, we have an ability to do an issuance if needed. We talked about the regional measure that may or may not happen this november or sometime in the future. That would be the faster proposal. We have gone over this before. Slide 59 is the five year proposal. 157 projects for 2. 4 billion. We close central subway out. The project julie presented lrv replacement is there. A key priority of th the Muni Working Group replacement of computer based train control system in the five year cip. Elements of better Market Street are there. Advancing muni forward. Not entire 500 for the modernization but Niagara Falls to enough t to keep the projt moving. Here is the very detailed elements of the Funding Sources and amounts on slide 60 over the five year period at 2. 4 billion. Slide 61 just shows how much of the pie different Capital Improvement types should get and what we were able to fund. The reason we make this public. They think the m. T. A. Has say on the capital side. We are restricted how sales tax can be used and federal dollars. With a discretionary source we try to be transparent about that. Here is the list of projects on slide 62. Quick build on the transit and street side for the very first time. Very significant in large muni projects. 22 fillmore. Second phase of 14 mission. With the geo bond it is getting shorter projects but more higher dollars and more substantial are included in the five year c ip. In closing on slide 64, all of these investments should support our values. We went through this design. Even after all of this, after this budget is approved by the m. T. A. Board and by the board of supervisors in the summer, we still will have a structural deficit. We still require 756 million to close the backlog and keep the system in state of good repair. We will see the 3. 3 billion backlog grow. Our needs with regard to investment in the system continue to grow. We want to get to all of the things listed on slide 65 fully funding the muni equity strategy, anticipating growth and funding system. Ongoing funding for vision zero education, not when we can afford it. Modernizing facilities, getting to the Technological Infrastructure and mode share. This budget does not do that but it sets a foundation that is what we can do in the next two year cycle. There are opportunities to look for. There were two Transportation Task forces. We are on slide 66. It shows the options before us to help raise revenues to close those gaps that i discussed, and in 2020 and 2021 we will work to advance these. This is today. Based on the feedback on the options we presented today, we hope to return to the seventh on schedule with the final budget for your approval and five year Capital Improvement program. If we require additional time or if there are things to look at we will have a additional meeting to approve. The charter requires we get a budget to the board of supervisors and the mayor by ma. Of course that is one of the reasons we are holding this meeting today. Let me say this. Thank you for the thoughtful presentation. Thank you, we recognize the fact you had to put this altogether under the trying circumstances that are going on in if outside world and to you and leo and the team, thank you very much. Any Public Comment. If you have Public Comment i would ask you line up and, of course, maintain the social distancing protocols advised. Mr. Miller, please. Two minutes for each speaker. Yes, i am haven miller. This is kind of like a question. The chase center. Every ticket comes with a muni day pass, i understand. How much money do we get from chase center for that . An idea to make clipper more accessible in outer neighbors that dont have access to downtown metro is putting tbms at rapid bus stops and metro bus stops on the surface. Then getting more proof of payment into the system. I know we had like some Contract Security that is being added to the subway. Maybe just instead of Contract Security putting like prove of payment because then they can provide security while also enforcing the fares. Generally, riders like to see the fares enforced. Thank you very much, mr. Miller. Next speaker, please. I am Sarah Greenwald. Can you move the microphone closer to you, if you care to. Thank you. I am Sarah Greenwald San Francisco resident member 350 San Francisco. I appreciate muni doing the utmost under the virus constraints. I want to thank and commend s. F. M. T. A. For that. As you have been saying, we can see muni is not set up for this. Hasnt got support and what it needs to handle these situations. These situations can be expected to recur, to be worse. We now have a clear object case showing that you have got to have funding for emergencies like this. This is a time to insist on it because it is so evident right now. That is going to take extra time, and it is probably going to require some delay in the budget. Now you mentioned the city charter. I am not a lawyer. Getting that to happen is not my job, but i cannot believe as a citizen seeing all of the emergency rules and regulations that have been instituted over the past couple days. Really i have to say that holding this meeting today instead of making at least a slight delay makes it look like you are using this as an excuse to hide from the people. In closing one second. With regard to the budget, i think raising the fare for the monthly pass. Disincentivizes Public Transit. That has a negative effect as a marketing strategy. I advise you to look at that more closely. Thank you very much. Next speaker, please. Good afternoon. I am pj. I hope everyone from the board saw how many people emailed s. F. M. T. A. Opposes the fare increase on all Payment Options in addition to the 800 postcard and 500 signature petition we gave the board on february 18. We know Public Transit is reliable and safe and affordable is important. Our allies cant be here because of Public Health that is happening. They did their part by sending emails and doing phone calls to oppose the fare increase on all Payment Options. Yesterday i was trying to go to work. The bus is late even if there is a time indicator at the 14 bus stop. I attended all board of directors meeting from january to now. When we bring up no fair increase oh, no Payment Option we get the service will suffer if we dont raise the fare. We already are suffering with unreliable unsafe services. Every 10 increase in transit fares decrease ridership by 2 . According to the january 2018 university of California Institute of transportation studies, Mobility Research study on falling transit ridership in california, stop the fare increase on all Payment Options and free muni for all is just inequitable. Thank you. Mr. Weaner. I dont think this issue should have been presented today. We need facetoface contact with the board. This is the worst time to discuss this. You could withhold this for april. When you increase the bus fares, you are going to have a decrease in ridership. There has been a problem with decrease in ridership. Now, as far as the sources of revenue goes, bicycle lists should have to pay for licenses. They get the benefit of bike lanes. So should scooter users pay a fee. Actually, if you want real options for saving, maybe you should freeze muni ford projects. Dont spend on those. Apply it to other expenditures that are necessary. Here is the ultimate option. The management should have their salaries frozen until there is some release for other expenditures and balancing the budget. If you really wanted it to be fair for everybody, it should apply to management. Now, these are some of the ideas i have. I think that basically this is an agency of perpetual deficits since i have been testifying here and it is going to continue. I think the real question is not balancing the budget as balancing m. T. A. As an agency. Good afternoon board of directors. First off, we believe our definition of equity is not the same as s. F. M. T. A. It means fair to everyone across the board. What is proposed to you right now is, yes, there is no increase on the cash fare but what we saw there is still massive increase on the monthly passes. Monthly passes are used by the working class and students. You are shifting costs to another grouping of people at the expense of another group. That is not equity. We understand s. F. M. T. A. Needs to make hard decisions. Should we cut services or cut down fares . This is nothing new from city departments. Similar lines were told to us a few years ago that we need to make decisions between funding for housing or funding for transportation. Our answer is the same. Stop putting different needs against each other. We need both. This increasing fare to provide service is false. Since 2005 the city of San Francisco has experienced 100 inflation in muni fares and steadily increasing approximately 7 each year. Transit riders have already done their share of helping muni be safe and reliable. The price on 2005 to now has doubled. We still have not seen improvements in services. Please stop this practice continuing to hurt the working class and City College Students economically. We need the department to hear us louder and clearer. No cuts on services, no cuts on jobs, no fare increase on cross the board to any Payment Options. Thank you. Thank you very much. Any further Public Comment on item 14 . Seeing none, jonathan, as i understand it, there are two main issues which you want guidance. The one i sum rised halfway through, if we accept cash fares flat, the all youth riding for free and the homeless benefit we talked about, then if we accept that premise whether we fund it by increasing the monthly pass fee more than we would otherwise or close the gap between the clipper card and the cash fare, which will remain flat but maintain differential. That is number one. I think i understand it but for efficiency would you summarize the towing option on which you would like our guidance . The towing option is simply whether to reduce the first time. Yes or no . Yes. Very good. Okay. Directors, we have heard Public Comment before we have individual directors provide guidance if they wish to do so to jonathan and leo. Let me ask if there are questions first. Director bordon. I have a question. We talked about this with people being able to use clipper card for a certain number of trips. When they get to the pass price they wouldnt de charged any more. Is that the policy . What i was interested in the correlation between most of the cash fare riders or low income are the cash fare riders that is why we are not increasing single fare ride. With the other part that people cant afford sometimes that pass at the beginning of the month. Is there a way to in that population again if they are paying 3 each time. That is more what they can afford as opposed to going to 44, would that be possible in that population to isolate it so they would hit that at the 44 as opposed to keep paying . We did discuss essentially what you are talking about an accumulatetor pass if that is possible and perhaps including it. That technology and leo or julie can correct me if i an am wrong. That is something that could be integrated into clipper two. It is something that might be possible in the future with muni mobile. We are looking at it. To implement the fare policy of that type we want the technology in place. That will take time. That is why it is not included in the budget. We have been told the technology to do the pass will not be available within this budget. One other item is that i think if we were able to pilot it, we would remember piloting it first on the lifeline customers really. We believe for the full paying customers we want more analysis. I wonder is there any way i mean do we happen to know any research to know the reason people dont buy the lifeline pass is because they cant afford the full pass . Is there away around . We want more people to go to clip person and the passes in general but at the same time can we allow a payment plan . Do we have capabilities to break up the price for a low Income Customer to buy a pass but maybe not pay it all at the same time . I am not trying to make your life more difficult. I have not scenery search or analysis seen the research or analysis. That is a good question. We are looking through it department at longterm options to allow more flexible Payment Options. Some is in the open loop payment as part of clipper 2. 0 but not in time for this budget, unfortunately. Letted me just address because in both fare policy options we have given you, and in recognizing that the number of people that could participate in a lifeline pass at that price might be an issue. We propose to reduce the monthly price. If you approve any of the items before you, the monthly cost gets reduced. We know that we might be hitting elasticity with that. As director tomlin noted, we look at the actual person using the fare media. To your point if we hit the point of the dropoff because lifeline is too expensive, we want to collect a certain amount of fare. That is the proposal before you today. Who gets the reduced fare monthly pass . That is a good. Question. The people who qualify for life line meet an income requirement. There are people who like persons with disabilities or seniors who would never meet the income requirement and could pay the full cost and this will provide a discount. Those are the people who wouldnt meet the income requirement for lifeline but are in special groups where we provide a discount. That includes youth presently but that is going to go away. Yes. It is a differential fare. Earlier in the presentation you underscored there are certain reliability improvements we are not able to make because of the balanced budget. Could you speak what that means and when the budget might be online to implement those improvements. I would direct julie to talk about what we are giving up in terms of muni reliability improvements and when and how we might be able to fund those planned improvements so many worked so hard on. Start with first one and we will be interested in the answer to the second one. I will answer first one. There are a number of things that we are able to achieve in the current budget proposal, including some of the staffing shifts that we have already made in 2020, taking advantage of our vacancy float to hire trainers and to fill vacancies and increase our supervision. This budget allows us to put a little more Management Structure in place to support that. We talked a lot with this group about one day you are an operator, next day you are a supervisor. As we hire up we want Training Programs in place not just for operators but for supervisors and entry level managers to be able to be successful and support the work. There is also some key positions to make sure that as we roll out central subway we are not diverting resources from the muni metro subway. That includes supervisors and some overhead lines, inspectors that will prepare us to be part of operating two tunnels rather than one, and there is also some staffing for some of our seed programs. Like the attraction power needs to support the electric bus program. It is sort of a sprinkling of resourcers that i think will allow us to keep momentum and to build the case as we go out to the larger public and community and ask for resources, addressing the operator shortage, providing some service, supervision enhanc enhancements and maximizing the investments we have already made. It is about a tenth of what we talked about in the overall Muni Working Group. It is going to take a concerted really all hands on deck constituent effort to identify the funds. You will hear a little bit when i talk about the Muni Service Equity strategy that is one place we can start with coalition building. There is definitely a set of service increased recommendations built around equity we are not able to implement. I dont have the perfect answer. If i did we would have money in hand. It will take all of us to talk about where we have successes, where we will continue to have successes and what we could really do if we were appropriately funded. One of the key risk questions you will have to help us address on the board is to what degree do we use our reserve fund in order to maintain what we have through an uncertain financial future versus take some risk to invest in what we are capable of doing in order to build trust with the electorate to go after new revenue to finally close our gap . I can tell you right now what i want. The irony is if we are in a trouble budget time, more people will depend on takes it i transt around. Less people using other modes. We will be the most affordable mode. It is important if we are gaining people back to transit who are transitioning from other options the service is strong and reliable and it will grow and help us fund the future enhancements that we need. I will say i agree. For 10 years of my 14 years here, i have been beating the drum how important it is to keep the reserve. The rainy day will come again. My first two years it was a rainy day when the reserve was important. You and i had discussions and i had concerns what we were doing with the reserve. It is clear the rainy day is upon us. For exactly the reasons vice chair borden said now is the time. This is not extreme reserve usage. We are right where we need to be by the guidelines. That is important to keep in mind how important that is for the bond rating and how the Financial Markets look at us. My view we should be above the reserve in good times so we can use that excess reserve and still maintain our bond ratings and financial status in bad times. That recipe proved fairly well the last time around. Now we are better situated. I realize this isnt the budget everybody wants. The fact we have the ability to tap reserves without going below guidelines is testament to past folks and you all and the board forgetting us there. When someone takes thing to, people are looking to me to say the reserve. The reason it is there before is for a time like this. I am line myself with vice chair bordens comments. I am sorry to take over. I am to speak last. Directors who are on the phone, i suspect some if not all of you would like to weigh in here. May we hear from you. Since i believe she is the longest serving i will call on directodrink director brinkman. Thank you. I agree with what you have proposed. This is the perfect example of the rainy day fund. I want to congratulate staff. I really appreciate hearing the budget update. They listened to the public and i am very, very supportive of the changes that have been proposed. I like vice chair bordens ideas for the Payment Options for the lifeline pass. Looking into away where people could not have to pay the full amount upfront on the first of the month before we get a fare aggregatetor option to allow them to pay weekly towards the lifeline pass. That brings up, again, i know the hearing from the people whose homes were towed hit me so hard last month. It was suggested to me by somebody who knows about that. We could look into a system where we enroll somebody in the Payment Method to pay off parking tickets. It seems that a lot of the time people who are vehiclely housed may not be engaged with the social services system, and this could accomplish two things, which would be to engage them with the social services system. Even if they are paying a small regular amount towards the parking tickets, it is a way to scoot them into the whole world of opportunity that the city can offer them in terms of help. Those are my two cents worth from my living room. I will now go back on mute. Very good. Director, do you have anything to add . Sure. A few Bigger Picture comments and a couple specific feedbacks based on the requests. First, thanks to staff. Ditto what director brinkman said. I appreciate the thoughtfulness that went into the budget. I wonder if i support what we are doing and i like the proposals of holding the cash fare at this time. Looking forward to the future, from a transparency standpoint, what is the plan for the next budget . Will we increase the fares in line with the fare policy . I wonder what our plan is. It is important for the public to have expectations around that even in uncertain times. Our policy will continue to be indexing the fares upward on the average of cost of living and inflation. This is important in order to allow fares to continue to increase with our costs and so that we dont artificially hold fares flat and then be forced to have a massive increase every few years. A modest increase every year is more helpful. All of this is in the context of however we shape the next new revenue measure. The next new revenue measure could ask what is the appropriate fare box return rate for s. F. M. T. A. And make changes there. We can continue to look specifically at who uses individual fare categories. Rather than increasing all fare categories at the same Percentage Rate we can make adjustments to allow Cost Increases to be more eckwetable and have equitable and a accumulatetor pass to the extent we are allowed to buy the agencies. Does that answer your question . Very much so. Anything else . My second question relates to i know in the past that you were able to make slight adjustments to the budget after we pass it. I wonder if that can explain that process. I know the sf transit riders face it in their budget. Is there Something Else to do once we pass the budget to make changes if necessary moving forward . I will answer that question. In the fiscal year 1516 budget. There were a number of revenue measures proposed. There was seeds put in the budget to assume if those things passed the m. T. A. Would have a budget of a certain amount and implement certain programs. There was contingent language put into the resolution this board approved saying that in january of th the following year the board would have reviewed the physical health of the agency. If th the revenues were realized those triggers would or could not happen. We want a core budget approved. We are considering when we come back addington continuing get adding the contingent language to review where we are with regard to the policy and revenue changes in the budget now and have you revisit some things. Make sure we include all of the programs and they are approved now but adding the contingent language we advance them if we hit certain marks on the revenue side. As far as the two pieces of feedback you specifically asked us for with respect to the equity monthly versus clipper, my preference is equity clipper to reduce the differential between he electronic and cash fare. It balances the competing fares and that is my preference. On the tow options, i have a preference for option two. I still have pretty significant concerns about our practice of towing as that collection tool for unpaid tickets. I would like us to look at that moving forward once we are past this budget, i guess. That is all i have. That was plenty. Thank you very much. Director torres. If you are in your pajamas dont share that fact with us. I support everyone who wants to be. Thank you. You know, i feel having i am still having trouble resolving conflicts on the fare increase issue. What is the timeline when we require a final vote on these proposals . The final vote is not today . This is a session for feedback so they can craft the budget. The final vote on the budget is planned for april 7th if we have a difficulty crafting it or reaching decisions, we have another meeting in april, the second meeting on april 17th. Maybe 21st. Let me say this, today is not the final decision. If there are things you are struggling with we totally understand. At the same time i will say from my experience through the process, todays discussions will lead to the final decision. This is not merely an informative meeting. If you have feedback on any of the items, not all of them to be sure. If you have feedback on any of the items in your mind, now would be a good time to provide it. Right. I have had very productive discussions with jeff. I appreciate the time he took. We spent saturday morning going over these proposals and trying to derm what the options are. I have said i am against a fare increase. I am open to looking at how that fare increase might be implemented, especially less so to those least able to afford it. I support the towing amendment to deal with homeless we are not criminalizing homelessness or poverty. That is a priority for me. I know jonathan talked about earlier where specific areas they have been looking at to reduce costs at the agency. That is appropriate step to take. The other issue i dont know given the fact we are losing 1 million a week since this crisis occurred what revenues might we expect from the government helping everybody . Are we in line . If so what are the chances we night receive revenue help in light of all of the help going to everybody else from airlines to bankers . Those are the thoughts i want to put out there. This is a very difficult process. The budget process is the worst to go through when you are looking at minimal Revenue Streams and sources. I want be to applaud publicly jeff and staff who have worked on these issues. I thank you for the work that the current staff presented today has provided in the past and will continue to do so. We are all in this together and we need to make sure the number one priority are the people that need to use this transit to survive in the city. Thank you. That is very helpful. Thank you for the time that you spent with director tumlin. Director hemington. I cant wait until i am not the rookie any more. You are only the rookie on the board, not in the industry. A few comments. They will range beyond the two points of issue that you raise. First one i was encouraged by what jonathan said about some kind of midyear budget review. That is what we will need. We have so much uncertainty on our general fund and economically based Revenue Sources that i think we are going to need it. Secondly, on the question of transit fares. You know, at the last meeting i gave a nice speech about the indexing policy. Two weeks later i am sheltering in place. I think it is fair to say the times are a changing. I dont think it is the time to be raising fares. I would support the equity monthly approach with maybe one modification. I would support it more than the equity clipper approach because the latter whit els the discount down to a dime by fy22. At some point the discount becomes meaningless if it is too small. The modification i suggest for the staff and my colleagues to consider on the equity monthly and, jeff, it goes back to the comments you just made. Maybe i am misunderstanding what the information is providing us. On slide 19, it shows the 3 flat fare for both fy21 and fy22. Clearly, i am hearing agreement we shouldnt be raising it for fy21. Fy22 is over a year away. God willing this pandemic will be in the Rearview Mirror or diminished. I would prefer to restore the option to fy22 to be 3. 25, which is what the policy suggests. That kicks in revenue to the budget and puts the shoe on the right foot. The default is the indexing policy, not the default is a onetime deviation from the indexing policy. That is something for folks to consider. On the issue that i dont think has been raised in this meeting, and i think this is on slide 22. I still think it would be a good idea not to raise the demand responsive meter rate cap by an arbitrary amount but to eliminate the cap entirely and let the market dictate what people are willing to pay to use the meters. That would be difficult to estimate from a revenue point of view. From a policy point of view, that is the right thing to do. In terms of the towing question, which i guess is slide 25. The trouble i have got with option two, which i generally would prefer to option one. What option two does is jacks up the first time tow by almost 100 to around 530 on average between fy21 and fy22. It would help me when we make a decision about the options to have comparisons with other cities. I would expect we are on the high end of the range, and that is just a very significant increase to cover the other revenue losing items we are trying to include. Finally, jonathan mentioned a couple times that what we are doing here is really eating our seed corn. We are shifting capital money into the operating budget and then only able to backfill the capital money for a couple years. Obviously, with an operation the size and scale of the municipal railway, we need a robust operating and capital program. I really do worry we are headed in the wrong direction on that. The only real solution is to raise new revenue for capital or operating or both purposes. One thing i would like to suggest we think about is the fact that my senses in my tenure on the board have been mostly reactive to other parties developing revenue ideas and then we elbow up to the bar to get our fair share of that. What i wonder is whether it would make nor sense for us to take the bull by the horns ourselves and try to develop some revenue ideas that would help the m. T. A. And not try to worry about everybody elses chicken and everybody elses pot. Maybe that is something, mr. Chairman, you could do on the way out the door is appoint a subcommittee to take charge of that to see if we could fashion a revenue proposal for ourselves. Are you volunteering . Well that is the risk of ever mentioning an idea like that. It is your can chicken and your pot. Yes. I would be happy to discuss that with you the next time we see each other in person. Your experience in this game would be tremendous there. I know we are not going to get the resulting you want by wrapping more trains. I favor that and that is a great idea and would be happy to discuss that with you. That concludes my comments. Now, let me before i turn be to the directors, everyone is live. The directors who are here live in person, no matter how they are dressed. Jonathan, i think we heard clearly from our four fellow directors on the telephone. Is there anything you want to clarify from their comments that may be you werent getting because of the lack of body language or eye contact or do you have the direction of those directors . I am hearing on tow you are comfortable with option two. There are three of us to speak here. That is what i was getting from that group moving in that direction. I am getting on the fare policy you are in the middle. Well maybe the director was on one side and director themingger was on the other. What i heard from the four was there was except acceptance of the premise and which option to use to fill it. One point to clarify with regard to the fare policy and indexes is the board has always had certain goals, equity being one of them, ease of access to the system. Those goals have always existed with regard to the fare policy. With regard to indexing the question is from all of our transit fares, are we increasing the revenues to match the cost of the labor and cpi . Within the proposals before you, you are meeting the spirit of the fare policy and hitting the revenue mark. The trigger of the cost is resulting in the need to collect more revenue from the fare media, different programs. What we have done is gone a level below and we looked specifically at the people who are using that specific fare media and made it work. I believe we are true to the fare indexing policy and might continue down this path in the future. We are maintaining that the fare indexing policy must be used and executed and the agency must increase what they collect from fare revenue. That is clear. Those are the reasons we put it in place. I heard director tumlin speak to that before. With that, director eagan. Thank you. A couple of comments here. First. I want to applaud the fraud on the free muni. Two young people in my household will be delighted. It is equitable and in line with our goals. Loud and clear support for that. I also support pausing indexing on the cash can fares and remembering from the last discussion that the single payment cash fare was the fare media with the largest percentage of low income riders. That is equitable in response to the public input received. In terms of the two proposals, equity monthly and equity clipper, i am interested to hear from our colleagues on the phone, director rubkes support for the clipper proposal. I find myself aligns on this one where you are still receiving a discount in the equity clipper proposal and you are able to reduce the cost increase of those monthly fare cards which we heard from the public again is something that is of concern for folks. To director hemmingers proposal raise clipper to raising to cash fair before racing cash fare. Thanks for bringing those proposals to us. One comment on procedurally. I think we spent a lot of time talking about the budget which i think is right and that is our charge. At the end of your proposal we have the five year Capital Improvement program. We spent significantly less time in the details of that. That gets us to vision zero to fy24. I think that is right. I would ask for more detailed conversation to be brought to the board on the capital i improvement program. We havent had those options for our feedback. To help you, maybe the reason we do it this way is because the charter and approachation for appropriation of the board of supervisors including different elements. It is funds from exterior parties. The timeline is around the appropriate components. On april 7th we can go in depth on the five year and we dont have to approve on that day. We can bounce it. We can do that. I dont think we have been able to get into those issues. One thing i noted in there is that they view the communitybased Transportation Plan you brought us and everyone felt so good about and they asked for a modest amount of money when it comes to transportation spending. Total implementation would be 8 million. 3 million is proposed to be funded in the five year improvement plan. I would love to see this fully funded in the next five years. If we had a little discussion the colleagues would agree. We havent been able to get into that level of detail. The last thing to say because of the budget is when we talk about the wish list. I want to make an observation about the electric bike program out there on the streets. Just to observe anecdotally it was so much use of the electric bikes and growing sector of the bicycle mode we know to hit the 80 goal. It is 1 that is a mode that we have to support growing to meet the 80 mode share. Electric bikes are an interesting way to grow the mode share. When you saw the per minute cost going into effect which happened on march 2nd. I see so many ebikes out there. They are the only ones at the stations. People dont want to use them because they dont want to pay the per minute cost. Also, the flexibility of dock less mobility is a wonderful addition to the system. When you penalize people to pay an extra 2 to park not in a station. Several times as i biked downtown there are no spots there. You are stuck with the bike and dont know what to do with it. The system was working well before the 15cent charge. I am discouraged that to reach the 80 goals it seems now like it is compromised. The question after that long rambling preview. Did we consider through this process whether s. F. M. T. A. Would intentionally motivate or if they have made a decision about the policy structure. If we would want to subsidize the electric bikes. When you pay the 145 per year you are not paying an year to use the bike. It seems to be growing as a popular mode of transport. I think i know the answer but we might want to consider the subsidies. It is in line with the goals. We are able to learn and experiment with riding ebikes. I would argue that would be a great target for a new revenue measure to add to the popularity of the measure. Implementing them now would require shifting resources away from even more vulnerable users. As you know, we are facing a very, very tough Economic Situation as are our users. I understand that. That is a policy discussion i would love to have. How do we weigh this . I am not thinking in the exact moment. I would like to have those discussions. That is the conversation director hemingger will lead. We will volunteer him. Fantastic. Vice chair borden. Just going on. If you would care to give jonathan your guidance. You have spoken on these issues. I think just being able to go back to i am happy with keeping the cash fare the same for fiscal 21 and 22 for the reasons that director eaken stated. It is important at this point. The economy could be much better in 2022, we dont know is the problem. In terms where our Customer Base will be. Other issues. I think, you know, trying to figure out ways to recapture some of the last income and not necessarily be appropriating in the budget but the core transit operations that the working Group Proposed that we cannot fund and how we figure out prioritizing those things. I think also in terms of using the fund balance, it makes sense to use it for this purpose. It was pointed out that because we get so much money from the general fund and the Mayors Office looks at us having the reserve that other departments dont have, it puts us in a worse position. We are better off spending the money so more is available in the future as opposed to holding on to it. If we can get ourselves through the next couple years, i dont know that some of the other departments are in the same position. I know the Restaurant Industry and transit agencies there will be a lot of asks for government assistance in the next 18 months. We have to figure out how to make ourselves hold through that period when everybody is asking for money and only come back after those asks have been dealt with. It it would be helpful to see. We dont want to depress ourselves but the picture of the budget for this year where we are going to end with a decline in parking fees and fines, decline in ridership revenue, then just when we talk about the projections going out, looking at the graph and figure out fixing those things. Those are my priority areas. Wonderful. Thank you very much. Jonathan, thank you for your hard work. On the question of accepting the premise, i accept the premise. Lets start with free muni for youth. When that was proposed several years ago my belief was it would be provided to those who needed it, who faced barriers to the system. As i said my daughter should pay for her ride to and from st. Ignatius every day. I have come around on that. I have seen the issues that exist with the differential class of fares for youth. I am persuaded by the larger issue we talked about before. The city is more dense. There are not more roads. We need to train our children to take Public Transportation and build the next generation of riders. Our taking a bold step in making our Transit System free for people 18 and under is a strong way to go. I will also say this. I was swayed by an interview i did with a High School Reporter who was focused on fare evasion. Why should this be enforced . San francisco have much of a School Bus System the way other districts do. Our School Bus System is the muni. I embrace it. I would be remiss if i didnt comment dave and dusty and were ahead of me on thinking about that. Congratulations to this development, particularly david lets keep the cash fare where it is. I am glad to hear you both comment on how the indexing policy will be live. It is a policy, not a mandate. If we need to make an exception we should make them. This is onetime. It benefits the followings most under privilege. It does prevent someone digging for the extra quarter. It slows down the bus and affects visitors. As we work, particularly, with our visitors borough to regain Visitors Bureau this sends the right message to the visitors. How to pay for it . I am with the directors. The way to do this is to close the differential on the clipper card. I am sensitive to director theminggers comments where it is not much of a differential. I would like to see more people on clipper card. We have achieved the big part, flattened the curve. We are working on the remaining folks. That is the better voice and here is the reason why. The monthly pass may be of tremendous value is the fair method working folks in San Francisco are using. If there is a time to promote the working folks and get around the city with new jobs now is the time to do it. It may be an extreme value, i value, i would favor the increase in the clipper amount to shorten the differential between that and the cash fair to close that gap and accept the premise. On the towing, i would favor. There is one other thing i wanted to clarify on the premise. I know the answer but i want to clarify for the public. You went over free muni for homelessness. I want to be clear this is not simply someone can say they are homeless and they get through the gate and the pop officer is not going to enforce it. Iit is an administrative system where they demonstrate homelessness. I say that because i think one of the things we hear about fare evasion is people concerned it is not fair. They are happy to pay their fair share. They are upset when they pay and others are not. This is an effort to help the homeless. It is going to be administered and not take peoples word for it and create the perception of unfairness among other riders. Towing. Credit to you for going out to hear what is going on among folks helping the under privilege. I favor option two. I think that is something you are going to continue to work on with this board after i am gone. My reaction the broader than favoring option two. I want to give you the direction you ask for. Thank you for working. Look, we have talked about towing restrictions. You know where i stand. Rather than just continuing on the dialogue where we are going back and forth, you look for a different way to address the problem within the paradigm, and i appreciate that. Is that direct enough feedback for you . Yes. If i may, may i offer some thanks to our sleepdeprived budget crew. I will remind the members of the public here and those listening live and recording on sfgovtv we will continue the Public Comment online. All of these materials are available at s. F. M. T. A s. F. M. T. A. Com budget. There will be a town hall on march 19th from 5 to 6 30 p. M. I will host a Twitter Exchange from april 2 from 11 30 a. M. To 12 30 p. M. We will hear more comments as we struggle with these tradeoffs. Next item. I want do remind you when you come to the podium please use the kleenexes and Hand Sanitizer in the room. Item 15. Presentation and discussion regarding the Muni Service Equity strategy. The good news is my presentation is shorter than jonathans. The bad news is that i am pinchhitting for sandra who has her team that has led this work. She is exercising the discretion and is homesick today and staying home until she gets better. I want to thank sandra and ask some forgiveness for the board if i am not able to answer all of the questions on this topic. The muni equity strategy we are presenting to you in draft form today. It is the recommends and the process so we can incorporate your feedback. We will provide the full report to the board as part of the april 7th board packet. You will be able to see not only these recommendations but the supporting materials. The secretarthe equity strategyf a 2014 board policy. It was then built upon by not only be staff but both social justice and Affordable Housing that helped us shape the program. It is neighborhood based. The reason for that is that the Transit Needs in chinatown are different than in the bayview, and it allows us to develop tailored solutions. It is also very targeted and incremental. If i had all of the money in the world, how would i solve transit equity. It is more using data and Community Feedback to make in cremental improvements and to monitor those to make sure what we expected to happen is actually happening. We are presents at this time of year because it is set up to specifically inform the budget process. As you make decisions, the need to improve transit equity are front and center in the budget process. That is reflected in the value statement jonathan shared. There is both quantitative and qualitative data in addition to the metrics we addressed in years passed. We added the percent of Service Delivery in the 90 day plans. We are not filling all of the service. We used the equity policy to make sure we are fills as much service on the equity routes as possible. In addition to quantitative analysis we have a bunch of sources that help us with qualitative data, including operator feedback. Feedback from 311 comments as well as targeted meetings that we host. As this Program Continues to mature we are sable to do more things than in the past. One thing is working with technology team. I developed a dashboard for all of the 311 comments on service to allow us to parse it out based on routes and neighborhoods in the equity strategy, and we also took advantage of some of our Ongoing Community work. You will see a lot of recommendations for bayview. It wasnt because the Service Planners went out to do a bayview study. They partnered with the folks working on the bayview Transportation Plan and pulled out the transit recommendations. We also had multiple meetings with the Human Rights Commission and special thanks to director for coming and supporting that work. There is our third equity strategy we are asking the board to adopt. In first one we were focused on how do we operationalize this. What data do we collect and who do we talk to . It has become our overall transit planning process. This is completely integrated how we approach our work. The equity principles are forming the service and operations decisions. To that end, we just have this continuous feedback loop. We identify trends, we review them based on feedback that we are getting, identify recommendations where they are working. We continue forward, where they are not we correct. There is a continuous cycle. The equity policy also, i think, has good Core Principles to flag. One is that we are looking at data not just overall route. Some routes are very long through a lot of neighborhoods, what are the conditions in the specific neighborhood and looking at all times of day. Particularly people from low income households are less likely to have a typical 9 00 to 5 00 job and rely on Excellent Service around the clock. Some of the data trends that jumped out this year have to do with crowding. In the am spea peak that is schl crowding and work crowding. It looks at needs of people disabilities citywide as well as using data where ridership is heaviest. Crowding while it may mean one pass up for some customers, for people using wheelchairs, it might mean three or four vehicles pass up before somebody can get on. Crowding has an acute impact on people with disabilities. School crowding also emerged in the early afternoon so we most of our routes are not crowded between 3 00 and 4 00, but we do have isolated crowding on routes like the 29 and the 44 which drove a lot of the recommendations. A little bit surprising to me because in general the weekend ridership trends are going down. We have isolated crowding on routes, particularly north south routes like 8 bay and 9 and the 14 rapid. There is also good news that came out of the technical analysis. As part of the previous equity strategy we put a focus on the kt, as you may recall we did eliminate switch backs and added service in thelate the late eve. That was a reduction in gaps on the kt line, both in the bayview as well as in the omi neighborhood. Same on the 8 day shore. We saw a reduction in gaps when we looked at the 2018 data over the 2019 data. In addition to crowding, some of the other key findings had to do with long travel times between bayview and downtown as well as just general acknowledgment while missing service is not good for anyone, for people who dont have a lot of other choices or People Living in the bayview that may have to make a difficult transfer to missed service and reliability challenge impact them particularly acutely. I asked to go second after jonathan because one of the things you will note in the plan is that we cant afford everything that the plan recommends. We have tried to do a coding system. In green are things we implement with current resources plus recommended proposed budget. In blue requires new resources. They are important for the plan to build the case we need to be growing service, in particular, we need to close equity gaps. I am not going to go through every proposal, but i will. For our friends on the phone. Slide 16. I am on slide 16 and 17. Those are the recommendations for the bayview. For example, on the 19 polk, one of the recommendations is to address the hotspot at larkin and farrell using the quick build tool kit the board approved earlier this winter. That is an example of something built into the Capital Budget and we can move forward on. We would like to increase Weekend Service on the 9 9 thats something we are not able to do under the current budget. We will be as creative as we can with scheduling to help with gaps where we can. 229 sunset has twotone indication. The reason for that is because we are recommending a Significant Service increase we create a 29 rapid for this route. That 29 rapid was going to be commented with travel time improvements that make the service quicker and more reliable. We will continue working on the capital piece. There are Capital Resources in the budget to address it. We will continue with the planning process because i am hopeful that we will identify resources and getting Community Feedback on what the 29 rapid would look like, where it should stop and go. It when allow us to be ready if and when funding becomes available. In chinatown, one of the proposals i am excited we will be able to implement this august is to both extend the 30 stockton to the presidio providing connections to the field and going from 40foot to 60foot buses on the long line. The new electric buses allow us to consider things we never would have considered before. Getting to the presidio and how we would spring wire through that area was not possible. With the range we are seeing on the vehicles, we think we can extend them. There is a benefit because we have a much bigger terminal to allow us to do 60foot buses in that area and better operator restroom. There will be operational benefits and decreased crowding through chinatown. In the excelsior and the mission the biggest need is more service. Many of those proposals will be on hold pending additional funds. There is a quick build project on the 54 to build on the route improvements the board already approved and were implemented last year to make the service quicker and more direct. In the ocean view, the biggest improvement will come when the k. And t are separated. That is such a long line we do anticipate some reliability enhancements from that change. Also, coming back at the april 21st meeting to talk about the successes and Lessons Learned of the west porttal pilot to benefit the kt and m and the incremental supervision of hiring we are making will help that quite a bit. Both the intermission and the Western Addition have four recommendations than in the past. We have made significant investments including the 14 rapid project and service increases. We see a need on the 14 for increased Weekend Service, but here is another example where just having all of the service we are currently committed to be filled as we hire more operators will help with gaps which we are seeing on the 14. In the tenderloin and south of market area, we already worked on the northern part of the 27 bryant, but some of the benefits are offset by other investments we have made on fifth street. We hope to try to do a hotspot im movement at fifth and mission to help with delay in that area. We have a similar quick build project for the 19 polk. Treasure island was a neighborhood. Slide 23. Treasure island was a neighborhood we added this year. We had previously not added because it was one route that we were tracking, but it is in the report at this time. Some of the things that we heard based on Community Feedback is a need for better construction routing as the island changes and grows. We will continue to do that as well as increased supervision at the Transit Center to help with on time departures. In visitation valley, this is an interesting set of recommendations. If more resources were available, we would be investing in the heaviest used route and tiniest routes. The heaviest used routes for crowding and weekend connections people are making between visitation valley and downtown and chinatown. 56 rut land is one bus. If anything happens there is no service. Adding an additional bus would not only make that route more reliable but also allow us to connect just a few blocks over to the 29 sunset, which does run more frequently and would provide new connections. Then on the Western Addition we have made a lot of investments. One investment shown in blue we have current resources is the 5 fulton. It currently ends in the tenderloin right at seventh and market. We have been able to identify resources to extend it further into downtown to help with connections and help with the operator layover. As i said, for accessibility, we do track issues citywide. One of the benefits of having a lot of our customers with disabilities using the clipper card. We have good data where people are riding. Some of the heavy use routes include 9, 14, 14 rapid. Some of the investments we outlined on those routes will help people with disabilities as will the overall addressing the operator shortage and reducing crowding because we see a lot of passups. I am now on slide 27. Slides 27 through 30 talk a little bit about the accomplishments to date. This is something you will be able to read in more detail in the final report. I want to acknowledge this is a program we have a good track record on. It is one that as we identify improvements and the board approves we are able to implement. Moving forward we see this program continuing to evolve and improve. We were excited about a partnership with the commission on status of women that reached out to us, and we are excited to look at more gender specific issues on transit in future plans. We also hope to in the next two years take a deeper dive on the owl network and look at enhancing reliability when the service is less frequent being on time becomes that much more critical. Finally, either continuing to use equity strategy principals. Even in days like today where we looked at Service Reductions including not operating the express routings in order to better match staffing levels, we looked at it through an equity lens, which is why the 8ax and bx we did not make a change for because of their heavy use. Thank you very much for pinchhitting. Any Public Comment on item number 15. Mr. Wi ner. When you mention equity, it means equal services for everybody. Now, i can appreciate the changes that are being proposed that have been made. The accomplishments made, but there is still areasneg collected. For instance, the delation of the 26 valencia bus which ran directly to the mission bunnel campus was good service. It also connected downtown with the merced extended neighborhood triangle. That was delayed. When people have deleted. When people have to walk long distances when they are disabled and senior citizens. That is not equity. You are addressing the concerns of people that have been deprived of service. They have legitimate needs but so does the rest of the city. You have neglected that. When i hear managers say walking is good for you and when i address the plight of seniors and disabled, that is done with tongue and cheek. I recent that. That is the attitude of some managers of m. T. A. You have to have equity across the board for the city. M. T. A. Is a public service. Fire and police do not think in the same way. They dont favor one district over another. A house burning down in the bayview is as important as the house burning in the marina district. That applies equally to crime. Basically, i think this is a start, but you better address the rest of the city. As far as pleading no resources, managers are paid to address this. Thank you. Any further comment on item 15. Seeing none. My understanding this is an information item, not a vote item. Directors any questions . Yes, i do have one question. I know we use metrics around on time performance and schedules, but have we ever thought about a time . You made me think of that when you pointed out the hour and 20 minutes. I always look before trips sometimes i can get there 10 minutes in taxi where it takes 45 minutes by transit. I have a choice. Other people dont have that choice. Could we have like a trip time . I understand there are different variables. A trip time metric. That is the difference maker between people taking transit. You dont have a many choices. For people who have a choice we know that time is the metric. Is there a way to do a metric overlay of how many percentage of the city can get to Market Street in a certain amount of time . Have we ever looked at Something Like that . Thank you for asking. In the current report we have an analysis where we look at from different neighborhoods how long it takes to get to key destinations like sf general and downtown via transit and via driving. That gets at where you are talking about. It is part of the issue of the travel time to downtown and bayview connections comes up. I think that the stateoftheart is using access mapping access data so that if you ping on any neighborhood you can see with rings what can i get to in 15 minutes, 30 minutes, 45 minutes and what can i get to in 60 minutes . That is something we hope to include in the next iteration of this work. Jared walker is doing particularly interesting work on this topic and somebody we would like to engage within the next version. I think that would be great. The other thing is just that i know we dont have to i want to make sure we prioritize routes that have one bus or limited service. I have experienced how terrible the service can be. We make sure we prioritize those things. Also, the neighborhoods that have the furthest out, you know, visitation valley, bayview, neighborhoods that have the worst travel times in general, what their options if we can prioritize those. We cant do everything we want to do. My choices would be limited service, buses, having them come more frequent and more of them and to prioritize people further from everything and have less options. Only a couple buses to choose from versus areas with a lot of buses and opportunities to choose from. Thank you very much. We are at the end of item 15. We will move to item 16. Did you want to ask about 15 . I noticed on slide two, the bottom bullet the strategy is updated every two years to inform the budget. That is the subject of our discussion today. I wonder if you could comment in terms how the update of the strategy has informed the budget we are discussing. Thank you. Specifically, the board is required to adopt the equity strategy in advance of adopting the budget. That is why the full report and that action item will come to you on the seventh. I think that the equity strategy has kind of infused every part of the transit budget and was a big part what we discussed in the Muni Working Group, but the service increase proposal which i am still optimistic we will find additional revenues to do is driven by the findings in this report. Then furthermore, the investments in the base system are really respond to and resonate with the feedback that we are getting from people in these neighborhoods that having Unreliable Service that they cannot count on is not meeting their travel needs. It was sort of two fold. Both in making decisions about how we reprioritize resources in 2020 and then also as we made both capital and operating recommendations in 2021. Then i noticed and maybe it is what you have chosen to show us. This is mostly focused on transit. Is this specifically the transit Equity Service strategy . There are many others that have equity implications how we raise funds andy sign the streets, how are those . Is there a different document . It is very marrow. Not only very narrow. It doesnt address fares. It is specifically focused on the muni service. That is based on the policy the board adopted. We also look at equity through all of our capital programs and. We will bring you an update agency wide Strategic Plan with reframing of equity and what we mean and applying across all work areas. We hope to be accelerating that right now. It will be delayed. Okay. Item 16. Approving corridors on the San Francisco vision zero highinjury network on which the s. F. M. T. A. Can install the parking and traffic modifications quick build projects. That is good. Jamie parks is sheltering in places right now. He was to deliver this. I could deliver it for him. The meat is on a single slide. We seek approval for eight vision zero corridors including substantial component of the Bayview Community plan. We got this in advance. Wonderful written presentation. Is there any Public Comment on item number 16 . Seeing none. Directors unless there is questions or comments, i would call for a vote on this and entertain a motion. I move to approve. Am i allowed to second a motion . Why not. I will second. Thank you. Lets have a roll call vote on this item, please. [roll call]. That passes. Congratulations, thank you, staff for hard work on that. That takes us to the closed session. Yes discussion and vote pursuant to the attorneyclient privilege and conduct a closed session conference with legal council. Motion to move to closed session. Second. Those in favor, please say aye. I will take a roll call vote. [roll call]. So we will go chairman heinicke all right. We are back. The board discussed the tang matter and decided to come to settlement. The board discussed the other matters and no supplement were made. It would be appropriate to have a motion to disclose or not disclose closed session. I make a motion to disclose. Chairman heinicke all right. There was a motion. Is there a second not to disclose . Second. Chairman heinicke okay. Roll call, please. Clerk okay. [roll call] clerk okay. That concludes the meeting. Chairman heinicke as we conclude, as we close, i have two things to say. Happy birthday to my wife, ann morrissey. There is nobody else i would rather be sheltered in place. And director tumlin, we were afraid that our operators would not come to work. We were afraid that we would have a shortage of service and that our medical professionals and people who depend on our services would not be able to get to work, and that did not happen. We have our stickers on proudly. Please convey this boards thanks to your staff tumbay. I will. I could not wish for a better team. Chairman heinicke yes. This city has survived a lot and come out strong, and well do it again. But their dedication is truly remarkable. With that, we are adjourned. Hear, hear. Clerk thank you. Byebye. Chairman heinicke all right. We are back. The board discussed the tang matter and decided to come to settlement. The board discussed the other matters and no supplement were made. It would be appropriate to have a motion to disclose or not disclose closed session. I make a motion to disclose. Chairman heinicke all right. There was a motion. Is there a second not to disclose . Second. Chairman heinicke okay. Roll call, please. Clerk okay. [roll call] clerk okay. That concludes the meeting. Chairman heinicke as we conclude, as we close, i have two things to say. Happy birthday to my wife, ann morrissey. There is nobody else i would rather be sheltered in place. And director tumlin, we were afraid that our operators would not come to work. We were afraid that we would have a shortage of service and that our medical professionals and people who depend on our services would not be able to get to work, and that did not happen. We have our stickers on proudly. Please convey this boards thanks to your staff tumbay. I will. I could not wish for a better team. Chairman heinicke yes. This city has survived a lot and come out strong, and well do it again. But their dedication is truly remarkable. With that, we are adjourned. Hear, hear. Clerk thank you. Byebye. [roll call] clerk we have a quorum. Okay. First item is we will go into closed session. We need a vote whether to disclose discussion held in closed session on the january 21, 2020 special Board Meeting. Move that we dont disclose. Second. I do not believe theres Public Comment on that piece. All those in favor say aye. For closed session for today, before we go into closed session, is there Public Comment . Seeing no Public Comment, weth. The other Board Members will join us shortly, but i do not want to lose a quorum. We have several action items important action items to hold this afternoon. With that, we need to come out of closed session. So moved. Second. All those in favor . All right. Well start with Public Comment. The general Public Meeting rules apply. Please follow the normal rules that are posted about turning off your cell phone, etc. , etc. Open for Public Comment. My names john stinson. Im a 45year member of our pension fund. There were two things the public Pension Funds have in common. Number one, theyre all underfunded. Number two, one of the reasons why theyre all underfunded is because theyre over diversefied in highrisk investments like hedge funds. Most Pension Funds want 7 to 7. 5 return on their investments. To get a 7 to 7. 5 return on investments, its not necessary to invest in any highrisk investments like hedge funds. Two months ago, i gave you multiple portfolios of your stocks and bonds went back 94 years, and the average return just on combination of stocks and bonds and passive investments in those were more than 8 . Thats going back 94 years. Fourth, you dont have to go back 94 years. Lets just go back ten years, and investments in stocks, bonds, real estate, and public utilities, and passive investments in those investments. Number one, s p 500, and the passive investments. One year retained 15. 48 . Ten year retained 11. 9 . 60 40 . Tenyear average, 10. 594 . Real estate, passive investment in real estate. One year retained, 28. 91 . Ten year retained, 11. 9 . Okay. Thank you, mr. Stinson. One minute. No, please. This proves that you dont need any highrisk investments. All you need is stocks, bonds investments plus utilities. Thank you. Is there any other Public Comment . Move onto item 5. Item 5, action item. Approval of the minutes of the january 8, 2020 meeting. So moved. Second. Any other corrections, additio additions, or deletions . Ill call the question. All those in favor . Opposed . Okay. Next item oh, i forgot to ask for Public Comment on the minutes. Motion shall stand. Next. Item 6, action on the items on the consent calendar. Anyone wish to separate anything out . Ill move to Public Comment. All in favor . Opposed . Before we move onto item 7, ill make a motion we have several items that require action today. Im pushing things along so we do not lose a quorum because a couple of Board Members have notified me they must leave after 5 00. Okay. That takes us to the investment calendar. Board members, in october of last year, andrew provided some additional policy. The board asked for some Additional Information, and andrew here is to provide such. This is a followup update on the investment restrictions for Companies Operating in s sudan. The Political Climate in sudan has changed significantly over the last couple of years. Beginning in 2017, sanctions were started against sudan. In 2017, president al bashirwas removed, really, with the goal of having a democratically elected civilian government in place by 2022. While there is certainly some uncertainty about the continued stability in the country, weve taken some steps to ensure there is good rule of law and protection of human rights in the country. This has been recognized by the u. N. , by the International Criminal court. Pages 2 through 4 of the memo provide more detail around sort of recent developments politically in the country. So staffs here today because given the changes, the positive changes in political structure, we believe that theres increasing argument that a wholesale boycott of Companies Operating in sudan is potentially counter productive for economic stability in the country and ultimately the eradication of poverty in the country. They have significant challenges getting access to food, basic food and medicine. Everyone that ive spoken to have greed to that boycotting the companies in that country is not necessarily productive to improving conditions in the country. What were proposing here is that our restriction criteria would continue to restriction investment by sfers and companies that are providing military equipment in sudan as well as those that have been deemed c deemed complicit in the genocide. What were proposing, and this is on pages 5 and 6 of the memo, we would conduct Due Diligence of those Companies Activities to understand their compliance procedures governing procedures, Risk Mitigation strategies, social compliance, governance risk, and recommend that if we get uncomfortable with those, that the board does not restrict that if we get comfortable with those, that the board does not restrict sfers from investing with those companies. Weve proposed new criteria as well as companies that weve brought to the board in october against this criteria. And based on that, we have four companies that were recommending for continued investment restriction, but the removal of Nine Companies on our current restricted list as well as not adding Additional Companies to that restricted list. So what weve tried to do on page 25 is theres a restricted list, and then on page 21 would be the proposed list of unrestricted companies. Again, the proposed criteria are on pages page 5 of the memo page 5 and 6. So ill pause there, maybe let allen say a few words about this recommendation in the context of other plans around the country. And i advised special six plans. Two never had any antisudan regulation at all. Two of them did. Most of them proposed to divest from sudan or anyone furthering the war on genocide. You are in good company. You are still retaining some companylevel restrictions, but in the direction of moving toward relaxation of those constraints. Question real quick. How is is there a tiering or an overlay that yes, sfers, in our direction in sudan, and also in companies that were investing in or were looking to do into funds or whatever, their e. S. G. Plan, did we ever put metrics together or in the sudan, do those ever touch . We provide the list or plan to our managers or potential managers and instruct them to divest from those companies. Not all do they hold, but if they do, they restrict investment in them. Okay. Question now is, one, i assume youll go back and tell all the managers, plus the custodian that were amending this list. Thank you for that. I think this is a smart way of applying all our e. S. G. S. Okay. Thank you. I assume youll apply that in other areas, what you just did. Thank you. Okay. Go ahead. Im prepared to make a motion to staff the changes. I also want to thank you to include the links to all the articles. That was very helpful. Great. Actually thanks to luke for doing that and providing a lot of the detail here. Okay. I appreciate that. Can i just tell you, the issue there are two motions. Probably part of one motion on page 18, which you should probably, for the record, make. Well, theres two parts to this. Theres a motion for both items . Yes. Okay. The motion has been made by commissioner casciato, seconded by commissioner heldfond. Any Public Comment . You shouldnt invest in any countries that are involved in civil wars. The civil wars have been going on for hundreds of years, and when it comes to civil rights abuses, the country that should be at the top of your list is china. Theyve been refusing people for the last 75 years. Okay. No further Public Comment. All those in favor of the motion say aye . Opposed . Next item. Item 8, 2020 proxy guidelines. Members, there are eight recommended changes as summarized on page 2 of andrews memo. Andrew . Thank you. As bill said, annually, we review our proxy voting guidelines to ensure that theyre consistent with best practices in terms of governance and our expectations around that, and two, that theyre reflective of any changes that we come across in the governance landscape in types of governance landscape, new shareholders expectations. Few changes that were recommending this year, but those eight changes are on staffs memo. Ill just highlight quickly two of those changes that were making. One is we were previously voting against the chair of nominating Governance Committees at companies where the board is 100 male given that there is a reduction in the number of all male boards really across companies, were now strengthening our expectations there and are recommending that we vote against the chair of a nominating Governance Committee if the board is not at least 20 women. And then two, weve worked with our new proxy Research Provider to highlight our expectations around our compensation plans, and we will vote against highlighted compensation plans if we determine the longterm incentives are not performance based in some way and then if we feel like there is not sufficient transparency around the way that shortterm compensation has been highlighted by boards. The rest of them are fairly straightforward, but happy to answer any questions about those. Any questions or a motion . I would move to approve. Ill second. Any Public Comment . Then well call the question. All in favor say aye . Opposed . Okay. L lets go to item 11. Item 11, proxy voting report for 2019. We provide a report for proxy votes for the calendar year. Andrew . So quickly, well just go through 2019 proxy voting season, and then talk about our voting activities during 2019 annual which is the calendar year 2019. Relatively quiet year. A few things to highlight, there was a small uptick in the number of directors that failed to receive Majority Shareholder support due to mostly the boards failure to respond to executive com packages. More, i believe there were a number of directors that didnt get at least 70 shareholder support. And this is a trend that youve seen the last few years, so shareholders showing dissatisfaction with slates of Board Members. As i mentioned, boards continue to appoint additional women to close the gender gap that we see on boards. 19 of u. S. Companies had no female companies in 2019. This is down from 26 in 2018. There was a decline in the number of shareholder proposals that came to vote, and this is a trend that weve seen over the last few years, and this is because of shareholders are finding ways to address concerns over environmental and social issues and are working together outside of the Shareholder Resolution process to address a lot of these concerns. The ones that did go to vote did receive on average about 30 shareholder support, which is relatively high. Among those, the highest receiving support were related to Human Capital, so workplace diversity, Sexual Harassment policies. In terms of sfers voting, we took the hardest look at compensation policies, only supported 84 of those, which was lower than others. We supported a majority 32 of the 33 shareholders proposals on environmental and social issues that received Majority Shareholder support, including one at b. P. Where we were actually a cofiler of that Shareholder Resolution around climate change. Thats about it for 2019. Im looking forward to 2020. I think well see similar focus areas around talent and Human Capital management, Board Composition and diversity and Climate Risk Management that will be, you know, addressed through the Shareholder Resolution process. Were also tracking whats happening at the s. E. C. Now. Theres two proposals there, one related to the amendments to the Shareholder Resolution filing process, so making it harder for shareholders to file shareholder proposal, and then another proposal that would put limits on proxy shareholder and other shareholders. This is a discussion item. Questions . I basically have one question. A lot of data in this report. One piece that could be useful, but its not present. Im concerned where we did not vote with management and it still passed. You made one reference in there, 50 of proposals received Majority Shareholder report. That related to shareholder proposals. My concern is when we vote for something that passes and managements against it, whether or not this then becomes a priority, whether or not we should do more engagement, that we didnt just buy it by accident. I dont know if that data is available by glass or they just dont decide to put it out there. Its like playing baseball but not knowing the final score. Yeah. Its certainly available. The vast majority of shareholder proposals do not receive majority support, and management the b. P. Case is actually a very, very extremely rare situation where management supported the proposal, but we can, yeah, provide a little more detail its one of our major other partners, like calpers, are in the same situation. Youve got a lot to do, but thats one issue, weve been talking about proxy voting, step one, when we go into all the confrontations. Thats my observation. Any further questions . Ill call go ahead. The p. R. I. Report annually, as well or any type of reporting from the type of report that the p. R. I. Is doing . In terms of engagement with companies . Mmhmm. Thats a good question. I can look into that. Is there any Public Comment . Okay. That concludes item 11. Lets take us back to item 9. Item number 9, action item. Approval of revised guidelines for public equity and fixedincome manager monitoring and retention. Very good, Board Members. We have two suggested changes in the guidelines for Public Markets managers. The two items are related to frequency and reporting. This is in kurts memo, and kurt will please provide some comments. Sure. Commissioners, you may remember in december, we described certain updates that were limited to certain goals and responsibilities. What may not be known is theres an appendix that provide a process by which staff and the general consultant who employ when making decisions and recommendations to the retirement board concerning manager retention, these were last updated in 2008. And so as we did with the Overall Investment policy statement, we want to bring it current. So in addition to routine changes to certain descriptions and or clarifying language, its still noted we are recommending two primary changes that we believe will accomplish three things. First, they will better reflect current practices and duties. Two, they will involve reporting to reflect staffs resources, capablities, and really the sfers investment horizon, and the third is to make sfers as attractive as possible to the investment community. We are proposing a change in the frequency of the managers under review process, whereby we determine each managers standing, whether in Good Standing or under review. We use this based on data of june 30 and december 31 each year, rather than on the quarterly process. We believe that while staffs continuous assessment of managers is continuous and ongoing, we think a semiannual review is more in keeping with sfers longterm investment horizon, and we think that the depth of our evaluations will be improved. Further, itll reduce the time that staff spends on report production and presentation, and as you know, we generally feel like were underresourced. The next thing is were recommending a change in reporting. We wou we would like to have a report delivered to the managing director of Public Markets, my role, with the c. I. O. , on his role as managing director of allocation of Risk Management, the executive director, and the boards consultant. Any additions or deletions to that list, along with the general circumstance, will be noted in the report the month following the addition or deletion. Again, staff believes that such changes with consistent with the duties delegated among the staff and consultants described in the i. P. In december. And further and ill have allen comment on this, we do believe that the investment industry views detailing managers existing concerns is disadvantageous to sfers. We believe this limits the number of managers that will partner with sfers. I should note that we provided the board with a red marked copy and a clean copy of the revised guidelines. So with that, i would ask allen to make comments. Yeah. I would just make two comments. Were going to talk a little bit later about Asset Allocation, which would determine 92 of your returns, so the assess of commenting manager by manager distracted the board from more important duties. More importantly, reviewing each manager based on that manager underperforming in a particular period without the context of the total portfolio can be counter productive, so we do see more plans moving away from monthly reviews of managers who happened to have outperformed or underperformed in a particular period but less frequent, whereas an annual review, where you will go through your entire portfolio and discuss all of your managers and what theyre trying to do in your portfolio rather than investment objectives. So we do find these more effective, and obviously, if Board Members want a copy of the report, they can request it. It just doesnt get discussed in a Public Meeting frequently. Board members . Questions . Yeah, go ahead. This is an action item. Shall we say twice a year, it would be brought before the board . It would not be brought board the before. It would only be done internally . Thats correct. Except for the deletions and corrections would be reported out in the c. I. O. Report in the month following that action being taken. Correct. So there will be a Public Disclosure of who was added to the c. I. O. Report and who gets off the list. Yeah. And if someones added, well note the general circumstance. Right. Performance, and staff turnover, etc. So i was going to say i appreciate delegating to staff and not everything comes to the board. I would just say there might be a little bit here, at least from a perception standpoint, that things are not coming to the board to talk about, which can be desirable in certain circumstances. How do we have comfort with the fact that we know whats going on with these managers and provide the oversight that everyone expects us to provide . A couple of points, and ill ask allen to provide the boards consultant is a recipient of this report. Second is if we were to take any action, meaning termination of a manager, it still has to come to the board. I guess its the scenario that one of the scenarios that potentially bothered me is lets say someone was been on the watch has been on the watch list for someone, and maybe the board would have seen this and say, you know what . Its time to move on, and we disagree with staff. I think thats the one scenario thats a downside scenario for the board in terms of our responsibility. How do we get comfortable with that . That scenario is again, i want to make sure, again, is a manager is on that list forever or for a long time. Yeah, a long period of time. How does the board know that staffs taking action there . In that case, i think thats the role of your general consultant to inform you of that. One, were not stopping the production of the report. Were still going to use it, were just not trying to circulate it and make it a focal point of a meeting. You could do were going do do that, and you could agree that the board is going to report additions and deletions. You could add that managers are added to the list after x period of time, but we would certainly be doing that on your behalf. How would you feel about that additional staff, where you just bring it to the boards attention that manager x has been on it 18 months or 24 months . You know what id propose . We did our last general update in january for public equity. Maybe that could be something, to know whos on the list and for how long . And if a board member wants to ask specific questions about a manager once we, you know, find out manager x is whatever the scenario might be, whats your what if a board member wants a deeper dive on a particular manager . You have that ability right today. Were not it doesnt need to be a publa it would still be a public report. The only difference is were not discussing it as a separate item and publishing it to the world. But i think as has been said, you know this report is being prepared. You can request it from kurt, from bill, from allen. The public has access to it. The issue is we are not, on a quarterly basis, bringing it here as a topic of discussion. Okay. Thank you for the explanation. Its available to you upon request. And the public. Yeah. We request it. That was my question, as well. How do we get the information . My questions two questions, actually. In the march copy, where you strike the word general in general consultant, you have to know who it is. Now its become vague. Do you have a suggestion then . Huh . Do you have a suggestion . Not off the top of my head, i do not. Id identify which consultant it is so we dont have to shop around for consultants. When we hired a p. C. A. And we did the r. F. P. Search, that role was filled, the general consultant. That i understand, but you take out the word general, we have other consultants, who wears other hats. On page 1, the general consultant here on out, with a capital c. So from a policy perspective, we have defined general consultant with a capital c to be a consultant. Id just sort of like to make that statement publicly. That may solve the problem. Im not sure. Im more concerned about trying to understand this report, that there are managers who may not want to work for us because of how we do things. The question is how and when to look at a managers performance. We dont hire them based on quarterly numbers, right . Certainly not. It was a much, much longer period of time. And therefore, i assume we terminate them based on a much longer period of time, right . Correct. So my point is im not trying to raise the issue of transparency, but what are we going to look at if theres a problem with a manager . Well, again, staffs review of managers, we dont look at them quarterly or monthly. We look at them continuously. Are you going to bring it to us, or do we have to ask for staffs report. When we ask to terminate a manager, we have to bring it to the board. What about before . I guess i dont understand, what about before . Managers, you either like them or you dont. There is no all right. One is by termination, and the other is repairing and meeting the benchmark. So with an ongoing report, bringing someone a month in advance of us deciding were going to recommend termination, it you know, the issue is when were ready, and we believe that they need to be terminated, we need to bring it to the board. We brought it to the board in the past, and we continue to bring it to the board in the past. We dont know if were two quarters away from recommending someone. We can, based on a tie, know how long managers have been on the report. We can certainly make that part of the report out on the c. I. O. Report, but i guess i dont understand its a discussion item only until we bring a recommendation to terminate the manager, and thats how the reports been designed in your policy. With regard there are reasons that money is reduced or taken away to a manager or money is added to a manager, correct . Absolutely. Thats correct. We used to be able to see that. Now we wont see that, will we . Well, that may be true, but thats not a part of this policy. Again, but thats position that triggers the board, maybe i should go ask for this report to see whats going on, okay . Im just trying to point out if this is the way you want to do it, youre basically telling the board, ask for the report. Any objection to including the Board Members in the distribution of the report . Is distributing to a quorum of the report its still a public document, but were just not calendaring it for a public discussion. So can we add in the policy that in addition to the boards consultant that the Board Members get a copy of the semiannual report . I defer to you guys. That yeah. But there is this is a discussion item only. I always defer that to the discretion of the board. If thats what you wish, then i would like to get a copy of it. Then we dont need to ask for the report. Theres no problem in providing a copy of the report. Electronic copy when it comes out. We can read it at leisure. Yeah, be glad to. I think thatll solve my issue. Okay. Comment . Commissioner okay. Go ahead. Sorry. Thank you, kurt, for reaching out in advance to brief me on this. I do appreciate it. I actually appreciate the fact that we are going to be taking some things off of the slate of things that we currently have in order to focus on some of the areas where we should spend more time, Asset Allocation being one of them, risk, etc. So i guess one of the things that i would say brings my comfort is that were going to see the discussion with the c. I. O. Of the report. It brings me comfort that the staff is going to be doing the same evaluation that weve been doing, that that will go on. And i guess one piece that i would like some clarification and description on. I think this would be something that would be beneficial to the public. From allens perspective, when you receive these reports, what do you do with it as a consultant . Yeah. In addition to this, we continually monitor managers. We find theres the four ps that really drive manager results. And so we have a process internally, if anything changes in any of those, we issue a 48hour letter to staff that says soandso, who was a Senior Investment officer at xyz resigned, and well issue a comment on that. So that happens continuously. Its not on a schedule, and this report would be involved in that. Were involved in producing it, and were involved in reviewing that, and if we see anything thats part of a process its usually not the case, that just because a manager underperformed on a benchmark for a while, its not something that causes a concern. Its more likely they had an ethics issue, they had a person leave, they tried to change their philosophy. Those are events, and those are events that happen or dont happen on a noncalendar schedule. So we look at those things continuously and make sure that staff is aware of them. And based on the disclosures that we would be seeing through staff, through the c. I. O. Report on any potential changes, do you have any additional concern that we ought to be seeing things that were not . There was one mention about someone who continuously was on the list and no action was taken, and i think that is something that you should be aware of, and as weve talked about, we can fix that. Thank you. Ill just make the observation, that the plan that you all have proposed and the board has accepted, in the particular area, not justificationjust fixed income, we allowed tracking to allow higher active share. Therefore, the board needs to watch you do this even more so than before. We dont need to talk about it, but now, youve given us a reason to really look at those performance reports more regularly, more thoroughly, so i appreciate the less frequent but deeper reports. Understood they shall be sent to the board . Well, we need a motion. Well, we have to amend the recommendation . Not have that in the text. What do you call it . Not the red line, the the marked version. The marked version of it. So we will go ahead and include each retirement board member in the redistribution of this semiannual report. Yeah. On the report, we would be added. Right, and well just send it to you electronically. Okay. We have a motion on the floor yet . I would move that we approve the recommended changes for sfers policies and guidelines as presented with the addition of the reporting of the report as the providing of the report to the board per our discussion. Is there a second . Second. Public comment . What you Board Members need to listen to is a passive money investment consultant. The only people you seem to listen to all yearround are asset sales men and investment consultants, and they gave you fraught advice. If you have a passive investment consultant, let me tell you what your tenyear returns would be. 10. 6 . Your oneyear returns would be 8. 6 , and i would say youll be lucky over the next few years to get a 6. 5 return. Ill call the question. All those in favor, say aye . Opposed . Next. Item 10, action item. Recommendation to issue a request for proposals for Investment Consulting services. Very good, Board Members. In 2015, we issued an r. F. P. For real assets. Cambridge was hired shortly thereafter, and its come time to reissue the r. F. P. Tanya . Yeah. Not much to add. I would just say its part of the normal board process, where every five years or so, were to go and test the market and see whats available. In 2015, the contract was awarded to Cambridge Associates with several extensions. And were on the last extension, which gives us time through october 2020. And were pleased to answer any questions you may have. Ill make a motion to issue the r. F. P. For consulting services. Second. Motion has been made by commissioner chu. Questions . I have one suggestion to the r. F. P. And one other observation. One, i was not able to determine which one of these duties would suggest the consultant should have experience counderwriting coinvestments. Since weve been doing coinvestment, and we have plans to do more, we should spell it out that we have a certain expectation that a consultant should be able to help us in this area. Definitely. Its listed in there. Ill have to find the exact wording that, you know, we noted that consultant should have experience in primary fund investments, core investments, but maybe not as prominently as you are suggesting. Okay. It is a different level or skill of underwriting as opposed to taking funds. Thats one. Two, its not clear from the r. F. P. Or from reading the current contract whether the how the consultant should understand what the relationship should be or must be with the board. Theres a question that they need to understand they are the boards consultant or maybe we dont want them to be the boards consultant. The language in the r. F. P. Is consistent with the board policy, and these folks are hired to assist staff. Certainly, the board determines who hires them, but certainly, on the and they report to the board, but they have a different relationship, then, for example, the general consultant. But at the same time, staff doesnt differentiate how we work with any p. C. Versus cambridge on anything. But this reflects the policy, the wording thats in the board ka boaboard s policy. Ill put it this way. If a consultant wants to come and talk to the board, do they have to tell staff . No. We dont tell them who they can meet with or who they dont meet with. We use them as a resource, and thats the only way we use them. In prior days, yeah, they sort of directed staff as to what to do, but now, we just use them as an additional resource. They are a resource, but they also have a duty and responsibility to tell the board, talk to the board. We can give them assignments. We can ask them to do assignments, and the board member can ask them to do assignments, and they routinely do. But i dont know if theyve ever gotten into a situation where they can talk to a board member. I dont know that its ever come up because were just using them to get to where we want to get, you know, as far as Due Diligence. If we want them to be the boards consultant, i want it to be clear, and i didnt read that in this. Well, if you say that, that puts them in a different position visavis staff, and i think the difference has been made in your policy that the general consultant is the boards consultant. You selected the consultant over the years. We bring you general candidates for the consultant. Under the boards policy, we bring a recommendation for these consultants, and the board either takes it or leaves it, as you like to say. They either approve the recommendation or send it back. So there has long been a distinction between the general consultant, capital g, capital c, relationship with the board and staff, versus the other consultants. The other consultants are just a resource to staff, and a resource, obviously, to the board, and their subject Matter Experts. Okay. Well the board certainly okay. I need clarification, because i thought these consultants mean for private equity and the board should be the same firm. Of who they can talk to and who they can take assignments from. Im hoping you feel like you can approach any of the consultants and ask them any questions. I understand that i can ask them questions. Im trying to ask if they understand what the relationship is. I guess i dont get it. If the board decides to promote more responsibilities to staff, its up to the board to have a discussion amongst ourselves, do we want to change the reporting role of the consultants . But i dont think thats in front of us today. I think thats a much larger discussion that weve had from time to time. It certainly has come up, but i think its obviously something that the board needs to do, and we need to talk about it. I wanted to assure you that were not gatekeepers to the board, right . Its a very collaborative relationship, and if any of the consultants wanted to communicate to you directly. They dont ask us, and they dont have to ask us. Theyre at our elbow, not over our shoulder. I guess it. Thats a much clearer explanation. Im just asking what the relationship is between the boards subject Matter Experts and the board. They are the boards subject Matter Experts. Yeah. And i want the board to understand that and the consultant to understand that. Yeah. I think that will become pretty obvious to them once they are introduced to the board, and they understand that, you know, theyre at the service of the board, and theyre here to help staff. Because i do know boards that have separate consultants for the board and a separate consultant and weve had that discussion, and we found out that it doesnt always work, and it actually, you know, costs twice as much money. It doesnt add any value. It doesnt add much value. The understanding between this board and the consultant i think when the board warrants to act as a staff member and needs a consultant to do that type of work, yeah, i can understand why the distinction might be important. But were operating under the boards policy thats been in place for many, many years. And we i know of no instance where we have ever restricted any consultant, including or actuarial consultant, including our Risk Consultants that weve had in the past from having a direct understanding that, yes, the retirement boards paying them, but we have access to them five days a week or seven days a week as a resource to help us do our business. Can i make a suggestion . I think this is a big discussion as we think about how the system and Decision Making and investments are going to change, and delegation of responsibility. Maybe this is something thats offsite this is an r. F. P. Request. I understand, but the discussion that i understand. We have a lot of business today. Lets get it done. Id like to call for the vote. Commissioners, id like to add that in december, we reviewed the i. P. S. Investment policies statement that clearly outlined the responsibilities and expectations from general consultants and other consultants, and thats in line with what jay just described. And general consultants, approved and searched by the board. Other consultants are reviewed through the r. F. C. Process, and comes to the board. So just in december, we had an opportunity to review the policy, and we are operating under that policy now. But we can bring it back as a separate discussion. You probably need to call for Public Comment. Well no, i was actually going to go back and say the same thing that she just said. We did all review this in december and we all agreed to come back with this type of recommendation. I would move that we move to adopt staffs recommendation for this r. F. P. Process because it its an item that we already discussed and approved, what staff presented a couple months ago. Theres a motion and second made about the r. F. P. Or what . Yes. [inaudible] Public Comment . The only thing ill say, commissioner, is im supportive of your comments on this. Thank you. Everybody understanding their ro roll roles is the key to decision quality. So yes, well issue the r. F. P. Public comment . Call the question. Those in favor, say aye. Opposed . Next. Item number 12, discussion item. Asset allocation study kickoff, introduction to leverage. Board members, this is an introduction to a new concept that sfers consider leveraging its portfolio to improve its returns, and to precede that, im going to provide some information about the volatility of our returns. Youll see in my memo on the first table, you see computation of three asset class, the three private market assess classes, and then the realized volatility for that period of time because the Asset Classes is not that old. And you see two very, very large differences. The customary practice of computing volatility for private markets assets has been to take a Public Market equivalent volatility and just that based on the characteristics of a private market asset class. For example, the volatility for any p. C. S expected for public equity is 17. 79. Thats roughly right in line with history. And the customary practice has been, then, to take and adjust that volatility for public equity based on things like leverage and other characteristics time, etc. And thats how an estimate of 27 27. 3 has customarily been used. And then, youll see the assets of public and private credit. However, our realized or actual volatility has been much lower. You can see that thats because our Public Markets are priced very infrequently, and that drives down the volatility of these Asset Classes. Their actual volatility theoretically, you know, would be higher if they were priced daily, but theyre not. What we care about as a plan is the actual volatility of our returns, and you see here that our actual returns for these three Asset Classes has been considerably lower than the computed volatility. And it affects the volatility of our composite portfolio. For example, historically, weve been using about 13 and this is now the second table. Weve been using about 13. 7 annualized expected volatility. Thats roughly in line what weve used in prior years. But when we skewed the volatility or our actual realized volatility of private market classes, we come up with a volatility thats much lower, 10. 3 that you see here. And then, youll see what our actual volatility, so what has been the volatility of our returns year to year . Its been more like 8 , and even 5. 5 over long periods of time. And then if we take a look at the tables on the following page for example, is, say, on the 20year volatility for private equity has been 16. 4. So we have been suggesting to any p. C. That we should, rather than use computed volatility, which theoretically certainly has merit, but what we care about is our actual volatility, and lets use our actual volatility rather than computed for private markets. And then, adjust that historical volatility that weve had for private markets based on how were doing things differently now and in the future than we did in the past. This is important because a volatility of 13. 7 versus 10. 3 significantly overstates our probability of incurring a loss, and it significantly overstates our possibility of incurring a large loss, okay . When you use 13. 7, a standard deviation of 2, you have a standard deviation event 27. 2, a 5 expected return, you have a probability of losing 20 , but its actually a lot less than that. And the computations are listed at the bottom of page 2. So were recommending a change in practice. Its based on actual results, not based on theoretically computations. Ill ask ann if she has any comments, and ill ask allen if he has any comments on this subject, as well, and then, well get into the subject of leverage. Commissioners, this is an important subject. I know that allen is going to comment on that, and also i welcome our actuarials view on that. We are adjusting volatility which is one of the most important estimates of risk. And as we went through the risk attitude of the total portfolio, were seeing that the way we calculate risk in the portfolio and the standard deviation of expected annual returns, we feel that we need to adjust it, and lower. So this is one of the most important risk numbers, and its a big discussion that we had with allen for years. Particularly since ive started, and ive started that conversation to make sure that we reflect the private exposure properly in the risk estimate. And this is not an sfers issue, this is an industry issue. Its a bigger issue the more private assets you have because the private assets are those that generally have less realized volatility for the reasons bill mentioned. So we have developed a set of volatility forecasts for private markets that do we reflect the realization of that volatility as observed through time. Youll see later when we talk about this, your expected volatility of your portfolios 10. 3, not 13. So were in full agreement that indeed this is a Better Process in terms of looking at the volatility of portfolio. When you talk about leverage, which we are going to talk about, as bill said, youve got an expected return of the portfolio that youre over time going to earn, but the probability of having an adverse outcome is directly related to how wide that distribution is. So a portfolio that has a possibility of 13 , if its got an expected return of 13 and a vol of 13, the probability of a return below zero is significantly different than if the volatility of that portfolio with the same 13 is 10. It cuts off the downside of that tail, so it does have real impact. We will be talking to kyron about that at the end of the day. We will be talking about a smooth volatility on private assets. Questions . I have one technical question, then. This lower real volatility number, or the private equity real estate, is that a San Francisco only number or is that any p. C. S generally in the world . Thats p. C. That has public and private assets. Thats everything, you just us. The only thing we do for you, joe, is we used to have one forecast for private equity, for example. Weve now got a forecast for venture, for buyouts, for private equity. We put those together for you because you have a different viewpoint for underlying strategies. For you, its not, but to makeup a number, 7 5 Venture Capital and 25 buyouts, whereas for someone else, those numbers could be different, but the atomic results are the same. And i hope im not jumping too far forward, but on 26, was this presented on the correlation on all of the underlying forecasts tend to be historic, but then known sort of differences Going Forward for behavior of markets. We dont make a lot of adjustments for the volatility piece, per se. It seems theyre very infinitesimal changes. Im going to ask you, subsequently, for previous years correlation matrixes. With that, ill stop my questions. Are there any other questions . Let me see if i understand this correctly. We are changing forecasts volatility for a portfolio based on our Actual Experience for private markets . Yes. Ive been advocating for this since 2012, and every time i brought it up, i was told i was wrong, so thank you for getting us there. I have a plan that has a permanent benefit increase formula, that over ten years, if they outperform 10 , they pay a special benefit increase. Thats an option. Options have costs. Costs are based on the volatility forecast, so they would have had to pay a higher amount to account for that if you hadnt made these adjustments, so this makes a big difference in terms of approach. And brian, ten years ago, when you didnt have that much i dont mean you, but you didnt have much in these private Asset Classes, the public werent aware of that. Its a much bigger deal when the public is 40 to 50 in 50 in public assets. Brian, if youve seen the numbers for the last 20 years that includes the internet bubble, including 2008, theyre still substantially lower for public and private equity that were estimating. Its 50 lower, including one of the most volatile times. Ythats what ive been sayig since 2012, and ive been saying why are we building on an expected volatility thats not even close to our Actual Experience. I didnt agree with that. Im sorry. I didnt hear you say that. Ive been advocating for this, as well. Its not often a board member is not that far ahead of the curve. Any way, i just wanted to bring that up. Probably another ten years, ill get another one. On page 2, on the first table, the 7. 74 volatility, realized volatility for two classes over ten years, thats not a typo, its just circumstances. The i did want to note, were using volatility, realized volatility for well, for 20 years, not ten. The reason why were doing that is because the last ten years, there hasnt been a sufficient amount of longer duration volatility in Public Markets for private markets to then just adjust their pricing. So i do think that those tenyear numbers are too low, but 27 has been way too high. Do you plan on explaining more about leverage . Because basically telling us about the lower volatility just means we achieved our rate of return for efficiently, but i want to go back and talk about rates of return. I associate leverage with making more money for more risk. Yes, absolutely true. Are we going to talk about that today or in the presentation. Thats exactly what were going to talk about. You havent talked about that i havent reached that in my presentation. Oh. Were ready to go. This is an action item to start off on the Capital Market outlook and revised Capital Market forecast on your policy portfolio returns. We do this every year. Historically, weve looked out five to seven years and 30 years. Youll see that this year, were going to look out ten years and 30 years. The reason were increasing that intermediate Term Forecast is because originally, thats if you look back to the period where we all grew up, an Economic Cycle was typically four to six years long. They varied. This most recent cycle is the longest recovery cycle that weve had since the civil war. Where theres concerted government action, it creates longer cycles, so youre going to see a 10 to 20year cycle. If you go to the next page, the practice has been to create an espers study every few years. Weve taken the policy and outlined the steps if you go no, youre on the leverage one. Go back its the go back to the asset class assumptions and returns first. [inaudible] the table you have on page 2 is the process youve used historically, so this is a kickoff february meeting. What were going to do is review the Capital Market forecast and the impact on your portfolio. That is a starting exercise. At the april meeting, we will get direction from the board on whether or not we might want to add Asset Classes, and i would suggest probably not. We already have plenty. Were going to go through the Capital Market assumptions in more detail, so today, im not going to spend too much time talking about where these forecasts come from, but i want to give you enough background that you know, and then, well bring one of our experts out. And what we most importantly will do is try to identify five to six alternative mixes that might make some sense. So we dont want to go into an asset liability study modelling an infinite number of Asset Classes, so we boil that down into a smaller number. In the june meeting, we will take those asset class scenarios, and asset class returns and integrate that with a projection of liability. So instead of talking about expected return and variability of the investment portfolio, you can look at expected contributions and funding ratios. So it starts to translate it into things that are more important to you. At the end of the day, we want to fund the commitments youve made at the lowest possible cost. At the july Board Meeting, we talk about Asset Allocation policy, and at the august meetings, youll remember we bring to the board a full presentation with one or two suggestions that you vote out on. Youll recall we brought four or five consequences. There was a discussion of the board, and p. C. Of the staff recommended one particular outcome. Brian asked one question at the meeting whether there were any increased volatility risks Going Forward, and the answer was yes. Its important that you understand where the numbers came from, what the implications are, and that you are, in an informed way, choosing the level of risk you want to take, and that will dictate your return. If you go to the next page, the output of that process on page 3 is this is what you approve. You will approve which Asset Classes youre invested in, how much money on average you want to invest in each asset class, arrange around those Asset Classes because thats your direction to staff to be able to operate the plan within board approved ranges. On this page, you happen to see what your actuals were as of 930. You see whether youre in compliance or not. This is what we report to you quarterly, and then, you see a benchmark for each particular asset class, so that page is what you actually adapt. If you go to the next page, page 4, you can see how that has changed through time, and you will see that roughly every three years, theres a new policy. Someone might ask how come 2011 goes to 2016, not 2014 . Because the current policy was adopted in 2017. You did do the study in 2014 and then two years later, the board adopted the addition of a 5 commitment to absolute return, and so that is the number were putting in here. So every three years, the board has gone through this process. And you can see how its changed through time. This page illustrates the changes to policy historically. And it graphically points out what weve talked about derisking. So bill mentioned earlier, if you look at the dark green, thats public equity, and the light green is private equity. Since 1995, the total has gone from 51 to 49. Thats not a huge change, but if you look at the underlying components, the public equity component has gone from 44 to 31, and the private equity component has gone from 7 to 18. We are fully supportive of that. We do believe that your ability to outperform in private markets is more deliverable, and private markets are becoming increasingly important to equity raising in this country. Public markets are actually shrinking. More importantly, if you look at public debt, the blue line, that is tradeable bonds. Its gone from a fairly high portion of your portfolio, public fixed income from 41 to 9. The reason for that is over this period, Interest Rates have been dropping. So today, when you buy a newly issued government bond, youre getting 1. 92 . And your return from holding that bond over the next ten years is going to be roughly that 1. 92 . If Interest Rates go down, it might be a little bit higher. If Interest Rates go up, it might be a little bit lower. So were looking at asset bonds having generated 6 to 7 over the last 100 years. Unfortunately, today, theyre starting at 2, and thats what the market is going to give you. You cant wish its going to be 6 because its 2. And equity concerns add onto that. And were not looking at 10 in equities and 6 in bonds. If we were, wed say passively index and be done with it. Were looking at 2 in treasuries and 6 in equities. You cant get to 7. 4 with any combination of that without leverage, which is one of the ways to deal with it. So this is just a nice picture of how youve changed your portfolio over time. This is what the board will be working on this year. Its not a oneanddone. We will have several meetings to go through this. I would urge you to understand this very importantly because this decision is about 92 of your return Going Forward. So thats the process, thats where weve been. If you go to page 7, the process we go through is every year at the end of the year, we take each of 40 Asset Classes, and we look at what its returns are Going Forward. 2019 was a year of very robust returns. U. S. Equities were up 31. 5 in 2019. If you looked at what Revenue Growth in those same companies was in 2019, ill give you a hint. It wasnt 31. 5 , it was 4 or 5 . Our economy is growing fairly slowly. Overall Economic Growth translates into Revenue Growth for companies that are proponents of that, and that growth has been 4 to 5 . So how did we get out of Companies Whose revenues grow 4 to 5 Economic Growth of 31. 5 . Weve had a dramatic run up in p. E. Ratios, the Price Per Unit of earnings. Thats caused by if individuals can only get 2 from their friendly bank, and thats lucky if you put your money away a long time, and the guy next door has been investing in the stock market, a massive amount of money has infused into risk asset. That number does not go up forever. Thats a cyclical number, and at some point, people are going to realize its going to come down. Looking forward, we dont think were going to earn 31. 5 and 10 in bonds. Its a much lower number, and thats what were going to talk about. On page 8, again, just process. We have tenyear returns and we have 30year returns. We share both with the actuary. The actuary has a longer term horizon to think about. We tend to look at the tenyear number as what we drive our policy around. The punch line is now on page 10, so page 10, there are four columns of data. The column labelled 2019 is what the forecast were last year. Looking out five to seven years, and this years, theres a little apples to oranges in the first two columns, and then, what your 30year forecast, what it was the beginning of 2019 versus 2020. So lets go down the first two columns, the expected return on your portfolio last year was 7 7. 7 . That same forecast today is 7. 1 , so not as high as your forecast. For 30 years, its still above the forecast. The expected volatility, as bill and ana mentioned, were using the smooth number, so 10. 3 for vol, and a sharp ratio of. 5, a certain ratio f of. 9. The possibility of greater return under your assumed rate is 53 . So more than a 15 chance that you will not achieve your 7. 4 returns in this tenyear period. Or you can take action, and the action you can take it try to change the mix in your portfolio to increase your return, which is a good idea, but im going to tell you its hard to find one that doesnt have a lot more volatility, orror were going to talk about leverage in a minute of the one of the things thats nice about having a low volatility portfolio, your portfolio would earn 7. 1 every single year. If you knew that and could borrow money at 2 , youd want to borrow a lot of money and earn at 7 because there never would be a possibility that you would earn less than the 2 . Now, the real world doesnt operate that way. If the volatility is very high, theres a high probability that at some point, the portfolio youve invested in will earn less than your borrowing costs. People who went through the financial crisis experienced that with their mothrtgages, a thats the reality here. Its not a panacea. It does, in todays markets, where rates to borrow are very low relative to the anticipated return in your portfolio are an option that should be considered and whos doing it. Can i comment on that real quick . Yeah. So the expected return, theres three ways to increase that. One is to change the mix, so take more risk. Second is leverage, and thing is alpha, so those are three options. And, in fact, if you know go to the next page well, i had one more. Okay. So and also, the expected return is a 5050 probability. So 50 of the time, the future will end up being less than 7. 1. If you think about it as i do along probableistic thinking that i was a 7 i want a 75 or 80 probability of being right and not that 50 , that 7. 1, that number would need to be well into the eights to have and to get a 75 probability. If you had a 75 probability, then, youre saying that im three times more likely to achieve my, say, 7. 4 than i am to achieve less than that. So any ways, i just wanted to point out that this is a 5050 distribution. And if you want an error rate of comfort is you would want those numbers to be materially higher. Yeah, thats exactly right. And what we did on the next page, page 11, youll see seven columns of data. The first column is what we just talked about. Its the expected return over ten years, and what that portfolio looks like using your current target. The next two columns simply say what if we simply indexed the portfolio in a globally diversefied equity portfolio and a globally diversefied bond portfolio . That is the next column. Thats the 6040, and ive never seen this in my history, and its not a typo. The next column is a domestic 6 6040. Thats because International Bonds dont look at good as equity domestic, but the two tend to be resultlatively clos. This is the 6040 portfolio. This is looking forward from where we are today and putting 60 of your money in index, in lets say equities and 40 in u. S. Bonds. The expected return on that portfolio is 4. 4 . And i will show you later, when we talk about leverage, pincos number would be 4 . Every other consultant that ive talked to would be between 4 and 5 , given that were starting with Interest Rates lower than they have ever been at any point in your history, we cant get to 6 on bonds. And if we cant get to 6 on bonds, we certainly cant get to 10 on bonds. Now, can it happen . I said we couldnt get a 31 in equity, and we got a 31 last year in equity. But theyre not going to continue to go up, and when they dont, its not going to be pretty, its going to be a major downside correction. So that is the driving factor here, is we have very low Interest Rates. Not just here, but around the world. Guilt bonds were issued in the 1800s and 1700s, and they are at the lowest level ever. Thats the rate. 6040, whether its domestic or international, gets you 4. 4 and higher volatility. Now, how do we get to our 7 . The last four columns, the leverage columns simply say lets borrow money and make the portfolio size 5 bigger, so we have 1. 05 for every dollar. That gets you to 5. 3 on a 7 leverage and 7. 3 on a 10 leverage. And then, to bills point, we took the current and added alpha with no new resources on the staff projection in the markets and interestingly, that also gets you to 7. 5 . So we can get to the 7. 5 through leverage, we can get it through alpha. I dont believe that kyron accepts alpha. Most actuaries dont. We would argue in private market that theres enough history that we believe its there. But again, it may or may not translate through to your assumed rate, but it certainly, from a projected standpoint, adds to the portfolio. And again, today isnt to pick or decide, its to really set up the discussion that says, one, i dont want to be the bearer of bad news, but the outlook looking forward from today is not as rosy as last year, and thats because this big runnup in equity risk prices, weve got to pay that back at some point. And two, we shouldnt be despondent because there are things we can do to improve our circumstances, but there are things youll have to approve, and nothing is free. So well have to talk about, it does zbgive you a higher expecd return, but it does have more volatility. The rest of the book goes through the detail on where the forecast came from. If you have questions, im happy to answer them, but this is sort of the punch line process that were going to get you to the point where sometime in august, youre going to say i want to change the mix or i want to add. Questions . Important subject. I would say difficult subject because theres so many things involved here, but Board Members want to start with the opportunity to ask some questions . And i can do the leverage presentation now or stop here and get questions and then well do the leverage presentation. Are we on time, commissioner driscoll . Were almost 4 30. We have one more until the next board member will leave with several more action items to go. When will we lose a quorum . Well, we wont lose a forum until 5 30. I can do the leverage in five minutes, ten minutes. Why dont you start and see if the board stops you. Okay. One strategy we talked about was to increase the expected return was leverage. This was in that other presentation, which we can put up. Leverage simply means borrowing at a low rate to invest in an assess a risk asset that will earn a higher return. Its particularly effective when the risk asset has low volatility associated with it. In preparing for this, ana and i probably looked at 400 to 600 pages of information. Im trying to boil is down to the first step of fundamentally understanding what it is and how you would do it, but obviously, we will have more to say Going Forward. Can i ask you, where are you looking at in the package . Take a look at introduction of the package, and now, if you go to page 4 toward the back of it . Toward the back. [inaudible] brian, i can just put it on screen. Just put it on the screen. Thank you. So leverage sounds like a fancy word. Its simply a technique that seeks higher investment profits about i using borrowed money. Those profits come from using investment returns on the borrowed capital versus the cost of that. Virtually everyone in this room who owns their own home subject to a mortgage has experienced leverage. If you can borrow at 3 to 4 that buy a house that deappreciates at 5 to 10 , however borrowers in 2007 and 2008, who borrowed against their house and found themselves upside down, thats the opposite. Leverage is fairly common. You already have it in your institutional portfolio, your real estate portfolio, typically, the underlying assets you buy in the real estate portfolio or that your manager buys on your behalf are 40 to 60 mortgaged. Your provide equity portfolio, particularly these days, the managers go out and borrow money to make investments before they call the capital from you, so you have leverage there. You have equityizing cash in your portfolio, you have cash thats idle, so you have futures to earn an equity like figure on your cash. This is not a new concept, its not a foreign concept. What is new is thinking about it at the total portfolio level. Allen, the total ratio of the s p is like 50 to 75 . I mean, when you buy a stock, youre buying a leveraged instrument versus the bond. Turning to page 5, why do we think about it . Leverage is used by several of your current managers in their strategies, and more recently, many large Pension Funds have g begun to employ this. The state of wisconsin has begun to do this five to ten years now. To tell a story, san diego this. They had a leveraged portfolio that for four or five years, they were the best performing public fund in california. And then in may and june of 2017, if you recall, Interest Rates went up a little bit, and asset prices went down, and they lost about a half a year of their advantage, and the board got together and said wow, this stuff is risky. Lets get rid of it. They got rid of it right at the wrong time. If theyd kept it, today, theyd still be the best performing public fund. So one of the cautions here is leverages will have periods where there are adverse returns. And if you as a board will have fears when there are average return periods, it takes an informed board to make a leveraged risk strategy, because the highs will be higher, and the lows will be lower. There are lots of ways you could add leverage to the portfolio. The city and county of San Francisco could issue a pension Obligation Bond. This is not your choice. They could go out and borrow money at 2 and prepay their contributions. You could directly borrow from a bank. Some Pension Plans have done that. It may not be legal. I didnt check the law in california. I dont know if you as a pension plan can borrow independent of the city, but the simplest way is to fill out and borrow money, and for every dollar in your portfolio, you create 1. 05. The most efficient way to do this is by using the leverage in a future or derivative instrument, and were going to talk about that in a little more detail because if you do this, youre going to want to do it that way youre not going to want to do it that way. If we go to the next page, i want to sort of build the case here. Go to page 6. Why now, so if you go to page 7, one more, the current Economic Cycle is the longest since the civil war. Weve put that on here. That blue line is our current economic expansion. Its very long, and its very weak, and that has been conditioned by very, very low Interest Rates and a massive deficit. The u. S. Government spend 1 trillion more the year prior, and it did it again. Massive Interest Rates of borrowing that keep Interest Rates low that keep Interest Rates positive but not but not enough to generate returns. Asset class returns from been exceptional since the bottom of the crisis in 2009 lo. Look at u. S. Equities in the last ten years. As i mentioned earlier, that has borrowed from the future, so you see in the next column, pincos future looking forward in this case for those same Asset Classes. So 15. 3 has been the return in u. S. Equities. Expected by pinco is 3. 5. For emerging market equities, line versus 8. 6, ours is 9. Again, i picked pinco because theyre a big company that everybody knows. Thats the challenge, and what you have to do is have a portfolio thats going to earn 7. 4 when the underlying Asset Classes youve traditionally invested in are not going to get you there. Our forecasts are on the next page. Im not going to go through them in detail, but you can see the last column is the change in our tenyear forecasted return going from 2019 to 2020, and theyre all down. For your portfolio, it dropped as you saw, about 60 basis points. So now, the case to use leverage in theory, one of the tools that we and almost everybody else used to think about your portfolio is this green line is the efficient frontier. It is the projected return for the best portfolio at every level of volatility risk as you go along this axis. If you want to get a higher return, you take higher volatility. San franciscos portfolio would be roughly if you if you kind of looked at where 10. 3 was, that was the vol, and went up, it would be 7. 1. So this is the kind of best you can do. If we were to borrow, we can borrow money, and once we hit that tangent point, borrowing takes us along that straight line, whereas increasing the risk of the portfolio puts us on the curve line. So this is the theory of leverage is we can get Better Outcomes by leveraging the portfolio rather than playing around with the asset mixes and trying to move out on that green line. Allen, the green line is changes in Asset Allocation. Yeah. And the purple line is leverage. Yep. This is the theoretical case for leverage. Using leverage efficiently, if we go to the page 12, to understand leverage, we think its first important to understand how derivatives can be used without creating leverage, so theres an example here that says rather than borrow from a bank, lets purchase 100 of s p futures. So that combination, we earn the return of cash plus the future, which is roughly equal to what we would have earned had we just held the stock. Thats assuming we keep that margin in cash. Thats no leverage. We dont have to keep it in cash. We can actually put it in a risk asset, and thats how we create leverage. You do something now in cash equitization. So again, if we go to page 13, if you borrow money explicitly, you create leverage. If you make an investment in a derivative, you go to the right there, you buy a derivative. If the collateral is invested in cash, you dont have leverage because youve got cash to deal with the movement up and down in the future that youve bought. But if you dont put it in c h cash and you dont have to, then you create leverage. Thats the mechanism by with you you would create leverage. You dont go to the bank and borrow, you take a portion of your portfolio that might be in index stocks, for example, and you buy a financial future to earn the same kind of return, but you have the collateral which can then be invested in something other than cash to create leverage. Is that is that clear . The next page just walks you through an example of that in dollars. Why would you do this . Because the costs are much, much less. You may invest in securities or Asset Classes that perform differently in the futures market, and you can create combinations of this. Its not riskless. The investor could face a loss should the Collateral Investments underperform cash. And the very last page, page 15, talks about the risks of leverage. It uses up liquidity, so you dont want to use too much of it. You it lead to higher or lower market risks, depending on how you use it, and it with create a markets active risks. This is where i kind of wanted to stop, is one, what is it . Why is it interesting to use it today, when might you do it, and how might you do it . If it appears interesting to you, the next point we would go through is deeper education. Ive really glossed over how this works. Youd want to see this in the real world. There is no proposal that staff will figure out with our advice or without our advice. The result would be a proposal that we do an r. F. I. To hire a manager engaged in this process, and youd hire a manager to operate the portfolio. You can do that statically and say we want 5 exposure or you can vary that based on economic output. Their there are managers that do that at that timecally. This is an tactically. I will tell you Arizona State is engaged in looking at this. New mexico teachers, the board has approved the policy to do this, and were doing the homework. Wisconsin is doing this. Their 111 billion plan thats 110 funded, interestingly enough, although they have a very different liability structure than you do, and we should say that in big capitals, but theyve been leveraging the portfolio. So its not a crazy idea but its not an idea that very many small plans would even contemplate, but we could do think it makes sense to at least explore this further, and were prepared to do that, first with education and then ultimately issuing an r. F. P. And i know i said a lot in new concept, but thats it. Board questions . This is discussion only today. Yes, this is discussion only today. What is the next step . Well, we wanted to get some feedback from the board on your appetite for this idea, whether to is it a full stop . Is it something youd like to see modelled, learn more about . We would propose if we do do this, propose to start it small, you know, 5 or Something Like that. The key take away is really i think the time horizon. The costs are low, but you need enough time for what you have borrowed to earn a return higher than cash. So, you know, it can be quite prof profitable if you have a oneyear time horizon. If you have a tenyear time horizon, its at the purviews of the market. Personally, i think its incumbent on a board member to look at viable investment strategies, and this is viable. And its our we should flush out the best advisor that we can and probably through an r. F. I. As part of the learning process basically, for us for me. Ill just speak personally and then make a decision on it. Its an excellent presentation, and id really like to take it further to make a decision. When rates are low, you want to be you know, you want to be a lender. Excuse me. When rates are high, you want to be a lender, and when rates are low, you want to be a borrower. And that requires some flexibility and being able to turn pretty quickly. And the more information we have, and the more options we have in our tool box allows us to make those bobs and weaves. Id just offer my two cents. I think its always smart to look at other possibilities, especially to increase returns. I think i am ill just tell you my sense of this. I have a hard time using leverage for a multitude of reasons, not the least of which is if something goes wrong, people are going to have a hard time understanding this, regardless of how good a decision it was. We live in a world where theres politics surrounding pension systems. Im of course always happy to see more, and i think its good to bring this to the board and let the board decide, but just to kind of manage, so everyone knows where i stand, thats where im at, at this point. I think id like to see us doing building more credit, more private equity, and if i were to prioritize, it would be a lower priority for me. Okay. Others . The question is why should we do this . I think you answered that question, but i think you didnt. The other way of looking at it is what if we dont do it . I like making money. I think the city wants us to get good returns because it mainly affects the contribution rates, but it also affects colas. I know of other plans that have done there, ais, and they lost. The question is what are the real borrowing costs . What are the odds are that we will make enough to cover those costs. We have to make enough one way or the other . It is so great. Youve given us all kind of accolades compared to our peers. Why should we do this . To answer your question, its a third tool in our toolkit to answer returns. One is Asset Allocation, and thats your beta risk. You can take more beta risk to earn higher returns, and also what coincides with that is greater volatility. The second is alpha, which you know we pursue that vigorously, you know, to earn higher returns than index returns. And then, the third toolkit would be leverage. And and any p. C. Events have estimated it as a 5 leverage, with about 50 basis points of extra volatility, and an extra 1 of volatility. I know that numbers was on that particular table. I didnt ask how you came up with those numbers because where is the money invested to, because i assume those are the rates of return. I assume we would not do private equity because its too liquid, although the returns are there. Im just trying to figure out the spread that justifies doing it. Because you might say yes, i am watching this spread. Because what you just told us, mr. Martin, were going to have to really do a lot of footwork to justify this 7. 4 return that youre currently using. Maybe the city said, yeah, if you want us to do that, were going to have to take on more risk, not just more volatility. Why should we do this . If we dont want to raise contribute rates, why should we do this . This is your decision, not mine. Im just saying i dont think youre going to get comfortably to 7. 4 simply changing the Asset Classes. The Asset Classes, if you looked on our page 13, that helped you get a higher return are emerging international equities, private equities, private credit, natural resources, real assets. You know, at some point you dont want to have more in private equity even if you think its going to get you a higher return. So the ability to do this through beta, as bill said, youre taking on other risks to do that. To do that in alpha, which were big advocates of, runs across the issue we may be happy its there, but its not going to directly influence, i think, your assumed rate. So the reason to consider it is a tool that will help us get to 7. 41 . Like any tool, its downsided. Brian, youre exactly right. There is public pressure. When san diego had their issue, the treasurer asked me to go down there and do a presentation. I went down there and said tool isnt a bad thing. If you dont have the strategy when you get a few bad out comes, then dont do it. I think san diego leveras e rate was really high. And that was what i was thinking. We now have all the pipes on the transparency and the reporting, so we understand and can calculate that leverage. We are also will recommend the plan design that is very reasonable on the leverage, and we will not go to the cigna will not go to the 10 por 30 where san diego was. So what we are trying to do is start the education, but to make sure that we are all comfortable with the reporting, with the transparency, and start really small. One concern that i would have is weve got a constricted budget. Weve got a big plan for a growth curve that we talked about, and were going to talk here continue talking about it. Do you see us going down this path of studying it, discussing it, peeling back the layers of the onion. Your professional staff time, is this going to take away from some trying times that were going into . That would be my yeah. So in exchange for 25 basis points of access returns, if this is worth us devoting staff time and consultant time to do, its worth it to do that. Just the m. P. Vs of t m. P. V. The dollars would be worth it. It would be worth it also to find an allocation in alpha. This is just a third tool in our toolkit. Go ahead. So i would say, like all investment tools, some have flaws, some do not, but its how you deploy them and how you use the tool that you have, and how the investment professionals plan to put the strategy in place. I would prefer to continue to study this as a third investment to build this team, to continue to do the research and see Additional Information on it. Again, ive seen issues with wisconsin and others. And again, it depends on the investment professionals and how they deploy the strategy for the Asset Allocation and how to use it, so i would be a proponent of seeing Additional Research on the model. I share some of the concerns that brian had mentioned. I would say if you were to ask if it was my favorite tool, i would say no. It does create some concern whether our system would weather the storm and continue on the path if we were to have several bad patches, so it does make me concerned. Im willing to be educated and have some lessons on it, but if we were good investors or we believe we have the ability to find and hire good investors, we should use tons of leverage. If we dont feel were good enough, it goes principlely through investmanager and gene manager investment. I know people who have borrowed money and they didnt do we we very well, and i know people who have borrowed money, and they knew exactly what they were doing. This is just a discussion item. Im anxious to keep moving the calendar along without stopping anybody from asking any further questions. We will be coming back to this a couple times, correct . Yes. And we understand where you stand, so thats helpful to know. We need to understand how much risk we want to take. Public comment just one more point just let her finish. I think as part of our conversation, we are i know kyrons going to talk to us, and were going to hear more about our actuarial liabilities, but i think we have to take a look at our assumed rate, as well. You shouldnt take upon anymore high risk investments. You already have enough right now. And beyond that, mostly columnists think that the next recession will be brought on by a global credit crisis, and you shouldnt have any investments with credit in its name. You all know what happened in 2000. What happened to all the dotcom names . They all went bellyup. If we have a global recession, the same thing is going to happen to anything with credit in its name or leverage in its name. So you should be doing what i have been advocating for in the last two years. A passive investment in stocks, bonds, and real estate and they will produce more 8 returns. You can go back ten years, 15 years, 20 years, five years. That proves my point. Mr. Martin, if we were to borrow 1 billion, could we invest it all in the stock market . Yes. Yes, we could. Okay. I just wanted to make sure i understood. Lets move onto the next item. Board members stock report. Ill just be real salient. In 2019, the markets were up north of 3 , and then, the coronavirus in the market gave it all back. Fiscal year to date, were up 5. 42 . I did want to highlight on page 2 just how much of the return last year was due to an increase in price earnings ratio. And you see its about 26 of the 32 last year, and thats something thats not sustainable. Now to be sure, the prior year, Earnings Growth was really good, and the market was down 4 . You put the two together, and theres a Earnings Growth was fine. But the point is is that now that weve had this, in the long run, returns are not generated by expansion of p. E. Ratios. [inaudible] we did get 200 million. Insight, a growth equity, private equity strategy. We asked for 75 million, the board approved. We were allocated 50 million for a biotech specialist in the absolute return portfolio. We requested 150 million. We are going to get substantially all of that over a period of time. They accepted 35 million. That will be staged in as the manager calls capital. Wind church, which is a distress for control strategy. In the buyout portion of our public equity strategy, we asked for 75 million. We knew we werent going to get all of that. I think previously, we got Something Like 23 million, and were cutback to 30. They were capital constrained. Were very close to hiring a security analyst for Venture Capital. I believe well have an announcement to make for that next week. We have recruitments underway. Even though there have not been hirings, the method continues to advance for a manager for security investment and provide Equity Private equity. The initiatives that you see underway, theres nothing new. A little bit updated here and there, but mostly not particularly new. I did add the section on coinvestments, and you see the strategy updates. We just did public equity and fixed income last month. An update for accepting the calendar year for 2019 for absolute return will be in return. These will all now be done once a year in this kind of calendar order. And with that, i can turn it over to the board. Any further questions from the board . Public comment . Next item. Next item is 14, action item. Approval of recommended action manager for the sfd global mandate. Thank you. Good afternoon. This item was initially proposed at the d. C. C. Meeting on september 17, where cal and sfpd recommended putting Morgan Stanley on its watch list after decreased performance on their outputs. Cow an and staff completed the search and identified three finalists onsite on november 12 after factors all the investment criteria as well as an assessme an assessment. Details of the recommendation are outlined in the attached presentation, which was made to the d. C. C. On december 18. Upon receipt, the d. C. C. Voted to approve, forwarding this recommendation to the full board with a recommendation for approval. So should it serve the pleasure of the board, cow an is prepared to make a fivetotenminute presentation to detail the nomination. Otherwise, we are prepared to ask the board to approve principal as the investment manager and the global mandate today. I believe thats why the committee reported to the full board. Is there a motion . Ill move the item. Is there a second . Second. Okay. I dont want to cut you off, mr. Unger, but it just goes to show that whoever gets called at the end of the agenda sometimes doesnt get to speak. Questions in favor of the comment . Call the question. All those in favor . Opposed . Next item. Approved revisions of the sfdcc proposed policy statement. Thank you, commissioners. Before you is a proposed revision to the sfdccs proposed policy change to include access to e. T. S. And u. S. Change securities in in addition to the mutual fund platform. A red line has been included for your reference, and the changes are shown on page 9. The i. P. S. Was brought to the d. C. C. , and changes were to be forwarded to the full board with a recommendation for approval, so we are asking the board to approve revisions to the i. P. S. Today. Any questions or a motion is in order. This was forwarded from the committee, correct . Correct. Yes. Motions been made. I didnt hear the second yet. Yes, he had a question, reported from the committee. Reported from the committee from the december 4 meeting. Yes. And i move to adopt this recommendation from the committee. Motion and casciato seconded. Ill make a comment, because this has directed from the second this was directed from the secondary brokerage, well need to look at this. Well discuss this as part of the economic waiver as part of the manager report. Okay. Great. No further questions, Public Comment. Ill call the question. All those in favor, say aye. Opposed . Next. [inaudible] sfdcp Investment Performance for the second half of 2019. Thank you. Commissioners, twice a year, we conduct a Performance Review of all the sfdcp performance within the plan. Callen is year to present the plan for the second half of 2019. If we are on time, we suggest a fiveminute presentation if the report is a strong one, that the board would be interested . I suggest you hit the highlights. Very happy to, and weve prepared on page 2, a summary of the highlights. Plan ended the year at 3. 9 billion. The change, given the great Market Outlook or experience in 2019 increased over 600 million. Its actually 1. 2 billion its grown over the last five years, so certainly, steady growth. The target date funds experienced strong returns. 3. 9 was for the income fund, the most conservative of the target date funds, out to 8. 6 for the quarter. Longer term results as you look through the balance of the report remain very favorable. Given the Strong Equity markets, all the funds have done well. Theres two funds on watch list. One was just taken care of with the Morgan Stanley, the two refunds, and one for the galliard. Theyve had some leadership changes. Nothing related to performance. Nothing related to performance. Ill skip over the Capital Market overview on the next few slides and just turn your attention to slide 8 for the individual market values. And you can see where participants have allocated their assets, importantly target date funds, roughly 21 of the assets. We see on a netflow basis, this is the largest increase as it relates to participants choosing where to put their moneys. Stable value was the largest, but its been overtaken by large cap equity, is up about 30 , stable value about 24 , and weve seen this concerning the relative stable value funds. Youll note in 2018, we added a bond index, a small cap, and an International Index fund. Theyre combined for 463 million, so theres certainly a big uptick there in just a few short years. And i would end for your review, page 9 shows the target date funds, and youll see each one is performing at or ahead of the benchmark that theyve that this custom benchmark across the different vintage years. Theyve arranged by the most conservative or near dated Retirement Fund at the top out to the more equity heavy longer dated funds at the bottom, and youll see very strong returns across the board. Are these returns metafees . They are metafees. Page 10 gets into the core option, so these are for participants building their own allocation vehicle, so the asset class funds. The color coding, the green means its in the top half. Metafees. You can see across the board, fantastic results and very strong results across the board. The results continue on page 11. The loan manager, you didnt see any red on the previous pages. The Morgan Stanley fund, and again, weve already taken action there. The page ill end on is page 12, and this is the component fund. So these are funds that are only available to rustle your target availability funds. You can see green across the board with the exception of the Morgan Stanley Global Real Estate in the third column, and again, that is something we took care of. The last two are d. F. A. Funds, value oriented. Its been a very strong Growth Market over the last decade, and that explains a lot of their performance. Not by much, but third quartile over longer term periods. So ill take a breath and see if theres any questions to follow up on. No board questions. This is a discussion item. Public comment . Thanks again for the thorough report. I know youll have more time at the Committee Meeting to talk about things. Yeah, absolutely. Thats it . Deferred compensation manager report. Thank you, commissioners. Last, but certainly not least on the d. C. Calendar today is the quarterly manager report. Ive been looking forward to this opportunity to update the board on the sfdcp since i may not be here to provide a Quarterly Report in may. In short, the plan is in a really strong position. In fact, looking at s. B. D. And outstanding loan balances, we are looking excellent. This demonstrates the confidence our participants have in the plan where they choose to place any residual income they have left after contributing to their insurance, pension, and other benefits. Assets were just over 2 billion when i joined four years ago, so the plan has really grown and modernized to be attractive to new hires as well as retaining the same participants. Contributions are up, total number of participants have increased, and total participation has never been higher, 55 . Over the last couple of years, staff has done a tremendous job in integrating dbdc communication efforts to present a more holistic communication efforts. A demoof the Actual Experience will be presented to the d. C. C. At the march meeting. So im aware of the hour. I will move onto the four pillars thats included in the Quarterly Report. On the investment front, we are currently in the middle of a stable value search as mentioned by mr. Ungerman earlier, and we are prepared to forward two semi finalists to the d. C. C. At the march 4 meeting. As the board is aware, galliard is the incumbent and has actually lowered their manager fee to a flat seven bits earlier this year. The plan also offers future ready portfolios, which are designed by Financial Engines. Future ready portfolios are off the shelf Asset Allocation strategies that automatically rebalance over the course of ones life. This is done for free, and participants simply pay for the services in the portfolios, the majority of which are index based, so theyre very low cost. They must review their Financial Engines annually and are proposing some slightly changes in anticipation of the coming markets. Those changes have been outlined for you on page 3 in the manager memo. Moving onto marketing and communications, staff have been working on three participants letters expected to drop this quarter. A target date fund 2020 letter, which has just dropped earlier this week, a selfdirected brokerage letter to advise on the econsent required for expanded brokerage access, which was covered earlier and an allparticipant letter to Aunited States announce changes to the real estate fund. In addition, the new sfdcp fact sheets which are designed by morning star are now available on sfdcp. Org or the proponent transactional website. I know that in the past, the work sheets have been a little bit harder so read, so i believe this is an improvement. Moving onto operations, we are pleased to announce that overtime pay will now be included as eligible for sfdcp contributions. This is particularly meaningful to safety as overtime can makeup a considerable portion of their pay but may not have been able to contribute previously. Thisll be featured in our quarterly sfdcp newsletter that drops in march and will go into effect no earlier than q 2. We are working with payroll on this, so we are working with their timeline. In addition, as mr. Huish mentioned in the last Board Meeting, details on the secure act are now available, and we are considering its impacts to the plan. Page 5, in the memo details which provisions actually impact the sfdcp, and of those, which ones are mandatory such as the r. M. D. Age moving up to 72, which ones are voluntarily, such as reducing the age to 59. 5 for inservice withdrawals, and those that are still subject to clarification, such as supportability of renewability options. Staff is working to implement the changes and will work with d. C. C. On whether the voluntary items make sense for the plan. Finally for our Record Keeper, we are continuing to see improvement in the managed account offerings and will continue to monitor the clientele. Details on that makeup and participant use of other complementary Advisory Services such as the phone calls and online advice can be found on page 7 in the memo. And that concludes my Quarterly Report. I am happy to answer any questions that you may have. I just have a comment. I would like to suggest that when you put out the quarterly newsletter that there be some type of complimentary a compliment of some type to mr. Joe collins for his work on the overtime for that because his work and your work and i think its something that should be acknowledged. Both of you should be acknowledged, and i think jay gave us input on that. So however you want to put it, but you know that work, i i think is something the members need to hear. Thank you. No, i certainly appreciate your enthusiasm, and we will try and factor that in as as it makes sense for the general audience. Im not conditioned to generally doing that, but we will certainly make it known that joe collins was instrumental, i think, in championing that effort in other ways in addition to the newsletter, if that makes sense. I understand what youre saying. Regarding the law change to the r. M. P. , please test to see what voyas retirement counselors and particularly the people on the phones handle that so we do not have the same problems we had with the previous Record Keeper multiple times. I understand. Anymore board questions . Public comment . Mr. Coker and all the other members think this is a good investment. Theres mutual funds out there that you can buy into hedge funds, so is there any reason why you cant make that available to our deferred compensation, members . That concludes this item. Excuse me, mr. Chair. I would just like to thank everyone for the thorough Research Done and all the well, i would say the meetings. We had numerous meetings prior to coming to the full board with our service provider, so thank you very much. Thank you. Next item. Travel expense report. We provided a detail of the Second Quarter of the fiscal year, through december 31. We expended 128,000 in travelex pences wi travel expenses. We have a remaining budget of over 700,000 available for the next six months, so if you have any questions not related to any of the travel thats reported here, id be happy to answer them. Any questions on this discussion item . Any Public Comment . Next item. Action item, review and approval of basic cola, effective july 1, 2020. Were going to do 18, 21, 20, right . This is number 19. Go ahead. Good afternoon, commissioners. San Francisco Bay area c. P. I. Was almost 2. 5 , which allows us to grant the full 2 basic cola. Sorry, im going to pass this over to mr. Homark so he can set up this presentation. This allows us to extend our 2 cole grant our 2 cola, and we ask that the board adopt the recommendation. Make a motion to adopt the recommendation. Is there a second . Second. Questions . Public comment . Make it clear, its a 2 cola. 2 basic cola. Basic cola. Effective july 1, 2020. Public comment . All those in favor, say aye . Opposed . Item 20. Item 20, action item. Termination determination and approval of credit Interest Rate for fiscal year 20202021. Commissioners, consumer Interest Rates remain the below minimum 4 as stated in the city charter, so we ask that you approve the analysis and approve the proposed Interest Rate for 2020. So moved. Second. Any questions . Public comment . All those in favor, say aye. Opposed . Okay. Before we go to the next item, were supposed to take one out of sequence. Yes. Were supposed to do item 23 before 22. Right. 23, please. Commissioners, bill homark and ann harper here from kyron to discuss the results of the actuarial evaluation, and it looks like theyre set up. Given the time here, we will just hit a couple slides to hit the highlights of the valuation. Employer rates are up, but it was expected. The projections are almost identical to what we showed last year, but from here Going Forward, theres significant downward pressure on the rates. So ill let ann do a quick overview of the projections. So this graph here is showing the projection of the contribute rates. The current valuation is for the fiscal year ending 2021. The contribution rate before any employee cost sharing went up from 25. 2 to 26. 9 , and as bill indicated, these projections and the actual rate for this year is right in line with our 2018 projections, which are shown on that blue with the blue line, and you can see you cant see, without looking at the numbers, that these projections are any different from last years projections. So thats a very positive thing. We always want to see that what we are projecting is really what is happening, and that doesnt always happen. So one thing to note, the contribution rate after cost sharing is 23. 5 for the employer, and then, the employee rate is about 11 of pay. There is significant downward pressure on the future contribution rates for a couple of reasons. First is there are about 875 million in Deferred Investment gains that will be recognized over the next five years, and theres also some of the amortizations that are going to be paid off over the next five years, and those are almost 8 of pay, so again, theres significant downward pressure on these contribution rates as you can see in the projections. So just to highlight that, on slide 11, were showing what the contribution rate would be next year, given an investment return over the next year. So x axis, the bottom shows investment ranges from 19 to 30 of pay. The goal line is the 26. 9 rate that we are putting in for fiscal year 2021. So 2022 rate is most likely going to belower. Be lower. Youd have to get a 12 loss or worse for rates to go up so much as to trigger the next employee cost sharing. So thats the effect of all that build up and downward pressure. Now, the other interesting thing here is between 7 and 8. 25 , those are the returns that would generate a supplement c supplemental cola, and the immediate returns of that cola, and from there, you get the benefit of the returns in immediately lower rates. So looking beyond, and the gray cloud is a projection between the 5th and 95th percentile. Theres a wide range in contribution rates, but just to emphasize the point were making, the high end here is pretty close to the current rate fore the next five years. That downward pressure protects us against higher contribution rates for the next four years. After that, there is the potential for significantly higher rates. In the shorter term, theres the potential for much lower rates. I wanted to add one more thing that i didnt on the slide that i was presenting is that the funded ratio for your plan is now 90. 6 , so youve crossed over that 90 threshold, close to 91 funding on a market value of asset basis. So with that, well take any questions. These are all based on our current assumptions, which we havent changed. Correct. So its the 7. 4 expected return, and all the other assumptions. And the projections actually include an assumption that well be paying a supplemental cola 50 of the time. Can you go back one slide. I forget what you call that. You know, one more. The one with the long arc, that what you call it . Yeah. Is that the a. R. C. . Actual returned contribution, yeah. A lot of factors keep it that level. As long as the covered payroll, you used last years covered payroll because this percentage has got to be whatever our schedules are for the liability and how we want to the number of years we want to smooth it or pay it off, thats where the percentage comes in . Thats correct. And you use last fiscal or calendar years payroll . We get a payroll data as of july 1, the valuation date, and then, we also know the collective bargaining increases across the board effective as of that date. We factor those in along with our future payroll increases. So when payroll grows, it helps keep the percentage down. Correct. Yes. Its theyre sort of not connected, but we watch the different triggers. Okay. Weve got good payrolls in the city. Granted, theres participants well, actually, i dont want to say that all participants are in. Some are not. Im just checking on the covered payroll. If there was a radical change, the city had to do something different, the contribution would drop. Right. So this year, the participation increased 5 from last year, so we anticipated it would increase by 3. 5 . So that additional payroll served to decrease the contribution rate by 20 basis points because youre spreading that contribution out over a larger payroll. Okay. Thank you. Board questions . Its a seemingly dry subject, but its a very, very important subject. This is a discussion item only. So item 23 requires action. Is there any board comment . Okay. Lets move onto item 23. We need to adopt the report. We need to adopt the report. I move to adopt the report. Second. Motion has been made and seconded. Public comment . Hearing none, all those in favor say aye. Opposed . Well adopt the report. Item 23, the contribution rates. Adoption of contribution rates for fiscal year 1920 and 2021. And id just like to comment that as the board goes forward and considers the next asset liability study, that they do give some strong considerations to the liability of the plan, the maturing of the plan, and how volatility might affect employer contribution rates and whether we with the lower projected contribution rates in the future, it might be an opportunity for the board to step back and take in less risk, just to consider in the future. And id also like to point out that we have kept the Mayors Office, in particular the mayors budget office, apprised of the actual numbers. We provide them projections that they sometimes adjust and use in their budget projections, but we anticipate this is lower than what they had assumed the contribution rate was going to be, so there will be some budget savings as a result of this calculation. Even though it seems very high, 26. 9, there will be some budget savings based upon the fact that they had projected the contributions to the budget to be higher. Maybe theyll increase our budget. Item number 23, commissioners, the development of contribution rate of 26. 90 is included in the actuarial report, which the board has just accepted. As a matter of form, we ask you to accept the contribution rate of 26. 90 for fiscal year end 2021. Ill motion. Second. Motion has been made by commissioner chu and seconded by casciato. Any questions . Ill just make the footnote that this increase, however, does not trigger an increase to what the employees must contribute. That is correct. People have asked at their Union Meetings about that, so theyll hear it officially. No contribution increase for the members, but there will be a slight increase for the city. Anticipated. Motion is made and seconded. Any questions . Public comment . All those in favor say aye . Next. Action item. Selection of actuarial consultants. Commissioners, our current contract with kyron expires at the end of may. We have recommended that we retain kyron. Theyve demonstrated the reporting, the quality of the written reports, and the responsiveness to all 30 separate questions that we asked, and may i answer any questions that you have that are not in the sheet . Ill make a motion that we recommend to staff to retain kyron. Second. Motion has been made and seconded. Any questions . Any Public Comment . All those in favor say aye. Opposed . Next item. [inaudible] of fiscal year 2021, department budget. Good afternoon or good evening, commissioners. I will provide just a very high level overview of the budget. First of all, this budget that were proposing represents a decrease of over 6 decrease from last years budget, but the decrease is due to the fact that we are decreasing the Investment Management fees that we normally include by 10 million, and as we discussed earlier, its more of a direction of lower fees by coinvestments as well as we have terminated some managers over the past year. But the two major Strategic Initiatives included in this budget, one which was presented to the retirement board in january related to the road ahead for us to meet the obligation to have funding for a 40 billion liability associated with the promises that the city has made to the plan participants. So this budget includes all of the new staff that was proposed by the investment division, and it was asking for all of them in year one, and it also includes the middle position on the career path, the Investment Officer position, which weve already done considerable work on. Second is one that came out of the funston retreat in 2017. Hard to believe its been three years ago, but its been three years ago. That was that we create either an external or internal audit function on the Operations Side of the house. And so over the last two budget cycles, we have gotten approval both from this board as well as the Mayors Office and the board of supervisors to create what were going to call a chief Quality Assurance director or an auditor. Karen and i have been working over a year with a candidate that has built an internal Audit Program in one of our sister plans down in l. A. , and weve been talking to him for over a year. And two weeks ago, we got a verbal commitment that he will accept the offer to come up and build out the plan here. Its an operational Risk Management as well as Quality Insurance and theres going to be some training. Weve asked him what kind of staff he needs. Hes identified the type of skill set, so there are four new positions in the Retirement Services division. They are quality auditors positions as well as an administrative or a management assistant position. So this is a very unusual budget. Ive never presented a budget where weve asked for 11 new positions, and so its going to be a challenge, but i think focusing on those two major initiatives and and certainly, we might need to ask for some help from the Board Members to support us on both of those initiatives. Not inconsequential is auto enrollme enrollment. Ive talked to the board and theyve assured us that theres certainly an additional workload involved in managing the auto enrollment, so we are asking for another benefit technician position in that budget, but again, being very sensitive to this budget is supported by participant fees. It is more than offset by the reduction in the City Attorneys budget. We generally have to pump up the City Attorneys budget when we go out for r. F. P. With the idea that if we change negotiations with our custodian, we would not have a lot of auditors. Even with the new position and also a promotion position, that would recognize the level of supervision that mary ann is exercising in the department. The other issue i will touch on two other issues that ill touch on, we have included in this budget an additional attorney resource, a deputy City Attorney that would be working on the benefit side as a resource to help us get more on top of the disability. I believe a review of disability applications with the idea that we need to this is a workload that is not, you know, necessarily having a high priority at this point. And so we have that included. And also, i believe, theres a 15 increase in the outside legal work order with the City Attorney based on the on the idea that as we go into more direct investments and coinvestments, we dont believe the contracting and the paper review is going to get less or less complicated, and so we want to make sure we have sufficient resources to do that. And so last but not least, and i dont mean this to be controversial, ive included in the Administration Budget a 630,000 increase in the lease revenues that would be available for us to use. We have certainly run out of space here at 11 45. Over the last two years we have run out of space on two floors, and the tenth floor is available on this building, so