The FY2018-2027 Capital Plan retains the policies set in prior years to ensure good stewardship of public funds and assets. These include the application of funding principles, restrictions around issuing debt, and setting funding targets for priority programs. The Plan’s policies govern the level and distribution of funds that feed into the Plan, while the funding principles show how the funds will be prioritized.

Policies

Pay-Go Program Policies

The Capital Plan recommends a funding level in line with the previous Plan: $137.3 million in Pay-As-You-Go (Pay-Go, or General Fund) in FY2018, escalated by seven percent annually thereafter.

Table 2.2

General Fund Pay-Go Program Funding  (Dollars in Millions)	FY18-22	FY23-27	Plan Total
Routine Maintenance	67	86	153
ADA: Facilities	7	6	12
ADA: Public Right-of-Way	38	49	87
Street Resurfacing	278	416	693
Enhancements	50	50	100
Recreation and Parks Base Commitment	75	75	150
Capital Contribution to Street Tree Set-aside	25	32	58
ROW Infrastructure Renewal	47	74	121
Facility Renewal	202	320	522
Total Recommended Funding	789	1,107	1,897

 

The Pay-Go Program policies associated with that funding level are: 

• General Fund revenue will grow at an annual rate of seven percent. This enables the program to grow at a higher rate than inflation so that the existing backlog and on-going needs can be addressed.
• The Street Resurfacing Program will be funded at the level needed to achieve a “Good” Pavement Condition Index (PCI) score of 70 by FY2025.
• Projects under the City’s ADA Transition Plans for facilities and the public right-of-way will be fully funded.
• Ten million dollars of General Fund each year will fund critical emergencies and enhancement projects not covered through debt programs.

Several voter-determined outcomes over the past two years have affected the availability of funds in the Pay-Go Program. Newly approved set-asides for the Recreation and Parks Department and street trees maintenance without associated revenue sources have resulted in restrictions on General Fund spending. In addition, the failure of the $150 million sales tax revenue measure at the ballot box in 2016 caused the City to rebalance the budget and five-year financial projections.

The impact of these measures and other pressures on the General Fund could have resulted in a significant hit to the Pay-Go Program. According to estimates developed during the budget rebalancing process, a net loss of $33 million was anticipated. If that loss had been carried unescalated through the entire Plan, it would have meant a $330 million loss to the Pay-Go Program, a 17.4% drop from the recommended level.

In April 2017, however, Governor Jerry Brown signed SB 1 to provide $5.2 billion annually for California’s roads, bridges, and transit systems. The legislation, which includes a gas tax increase and a vehicle registration fee, is expected to provide sufficient revenue to enable the City to recover from the anticipated challenges resulting from the local sales tax measure’s failure.

Though another source emerged in this instance, it is worth noting that a reduction of $330 million in General Fund capacity would have had serious consequences for the City’s capital assets and program. In FY2018 alone, the City would have spent less than 20% of the recommended $38.6 million on Facilities Renewals and Right-of-Way Infrastructure. The results would have greatly increased the renewal program backlog. It is important that San Francisco prioritize its critical Pay-Go Program needs now and in the future.

Debt Program Policies

The policy constraint for the G.O. Bond Program is: 

• G.O. Bonds under the control of the city will not increase long-term property tax rates above FY2006 levels. In other words, G.O. Bonds under control of the City and County of San Francisco will only be used as existing bonds are retired.

Consistent with the Five-Year Financial Plan, the G.O. Bond Program assumes growth in Net Assessed Value of 4.19% in FY2018, 5.90% in FY2019, 4.49% in FY2020, and 3.50% annually thereafter. 

The policy constraint for the Certificates of Participation (General Fund Debt) Program is: 

• The amount spent on debt service in the General Fund Debt Program will not exceed 3.25% of General Fund discretionary revenues.

Consistent with the Five-Year Financial Plan, the Plan assumes that General Fund discretionary revenues grow 4.8% in FY2019, 3.2% in FY2020, and 2.8% in FY2021, and 2.7% annually thereafter.

General Policies

The Capital Plan uses the Annual Infrastructure Construction Cost Inflation Estimate (AICCIE) developed by the Office of Resilience and Capital Planning and approved by the Capital Planning Committee for the first two years of the Capital Plan. For this Plan, that figure is five percent. Thereafter, the Plan assumes an annual escalation rate of five percent unless otherwise noted. 

The City uses a revolving Capital Planning Fund to support pre-development of projects for inclusion in bonds with the expectation that these funds will be reimbursed at bond issuance. 

Departments with major building projects within the Plan's time horizon are expected to develop estimates for the impact on the City’s operating budget as part of project development. Those impacts appear in the Plan to the extent they are known at publication and are further discussed as a standard component of requests made to the Capital Planning Committee. Operating impacts are also considered during the City’s annual budget development process. The financial impact of operations is not recorded in the Plan but is addressed for major projects in the City’s Five-Year Financial Plan.

Funding Principles

The funding principles for the Capital Plan are the categories used to make trade-offs between competing needs. They help San Francisco to keep our long-term perspective when it comes time to make choices about major projects and offer a consistent and logical framework for some of the City’s most difficult conversations.

FUNDING PRINCIPLE 1: Addresses Legal or Regulatory Mandate

Improvement is necessary to comply with a federal, state, or local legal or regulatory mandate. 

The City faces a wide range of directives and requirements for our facilities, some with significant consequences for failure to perform. Action in these cases is required by law, legal judgment, or court order, or it can proactively reduce the City’s exposure to legal liability. The legal, financial, operating, and accreditation consequences for failure to perform are all weighed when considering these types of projects.

FUNDING PRINCIPLE 2: Protects Life Safety and Enhances Resilience

Improvement provides for the imminent life, health, safety, and/or security of occupants and/or the public or prevents the loss of use of an asset.

Life safety projects minimize physical danger to those who use and work in City facilities, including protection during seismic events and from hazardous materials. Considerations for these projects include the seismic rating of a facility, the potential for increased resilience in the face of disaster, and the mitigation of material and environmental hazards for those who visit, use, and work in City facilities.

FUNDING PRINCIPLE 3: Ensures Asset Preservation and Sustainability

Asset preservation projects ensure timely maintenance and renewal of existing infrastructure.

It is imperative to maintain the City’s infrastructure in a state of good repair so that the City’s operations are not compromised and resources are not squandered by failing to care for what we own. It is also important to support projects that lessen the City’s impact on the environment. Some assets are more critical than others; for example, some facilities provide services that cannot be easily reproduced at another location or serve as emergency operations centers. Considerations for these projects include the effect on the asset’s long-term life, importance for government operations, and environmental impact.

FUNDING PRINCIPLE 4: Serves Programmatic or Planned Needs

This set of projects supports formal programs or objectives of an adopted plan or action by the City’s elected officials. 

Integrated with departmental and Citywide goals and objectives, this funding principle aims to align capital projects with operational priorities. Considerations for this type of project include confirmation that they will contribute to a formally adopted plan or action from the Board of Supervisors or the Mayor.

FUNDING PRINCIPLE 5: Promotes Economic Development

Economic development projects enhance the City’s economic vitality by stimulating the local economy, increasing revenue, improving government effectiveness, or reducing operating costs. 

These projects may have a direct or indirect effect on the City’s revenues or may help to realize cost savings. Considerations for this type of project include the potential for savings, the level of revenue generation (either direct through leases, fees, service charges, or other sources; or indirect, such as increased tax base, business attraction or retention, etc.), and any improvements to government service delivery, such as faster response times, improved customer service, or increased departmental coordination.

Equity in San Francisco is one of the many ways that the City thinks about resilience—making sure that the programs, services, and features of the city are available to all. From a capital perspective, this means enabling access for persons with disabilities through ADA improvements to public facilities and rights-of-way and also seeing that the distribution of resources like parks and transit options is equitable. Affordability is a related concern as San Francisco strives to enable new residents to make the city their own while preserving space for those already here.

Resilience and Sustainability

A fundamental concern of the City and the Capital Planning Committee is to develop and implement infrastructure policies and programs to provide a safe, livable, and equitable environment for local residents, workers, and visitors for current and future generations. As the stewards of San Francisco’s public infrastructure, capital planning stakeholders in San Francisco look for ways to increase the City’s resilience and sustainability via our capital program. 

Resilience describes the capacity of San Francisco's individuals, communities, institutions, businesses, and systems to survive, adapt, and grow, no matter what kind of chronic stresses and acute shocks they may experience. For San Francisco this means (1) the ability to quickly respond to a disaster or large shock; (2) the ability to recover from systemic crises such as economic downturns, poverty, and housing shortages; and (3) the ability to prepare for and address slow-moving disasters like climate change and sea level rise.

As a coastal city in a dense metropolitan region, San Francisco faces a wide range of challenges when it comes to promoting sustainability in our infrastructural programs and projects. Sustainability in San Francisco means promoting green building, clean energy, mass transit, urban forestry, and careful planning, as well as preserving our existing assets to reduce the need for additional building. 

For more information about capital-related efforts supporting each of these high-level goals, please see Chapter Four: Building Our Future.