S. F. budget has big new hole to plug in fiscal year
After plugging a $ 1.5 billion budget deficit caused by the pandemic, San Francisco City Hall now faces another $ 116 million hole in the current fiscal year that Mayor London Breed and the Board of Supervisors must fill by the end of the year.
That’s because San Francisco’s economy has recovered at a far slower clip than officials predicted it would earlier this year, according to a report released by the city controller Tuesday. The two biggest drivers behind the current deficit are lower than expected hotel and business taxes, as tourists trickle into the city and employees continue to work remotely during the pandemic.
Any hope of a faster recovery was dashed Tuesday, as Breed and the Department of Public Health halted the city’s reopening plans and rolled back activities like indoor dining amid surging case counts in the city.
“The bad news here is that the city’s economy isn’t recovering at the rate we were hoping for,” said Controller Ben Rosenfield. The good news? It could have been worse.
The current deficit could have been about $ 150 million more if voters had not passed Proposition F, a massive business tax overhaul. The measure, which had unanimous support from the mayor and board, passed handily last week.
Still, Rosenfield said this is likely just the beginning of a difficult few years for the city. As the crisis drags on, the city will have to continue investing in pandemic-related programs like testing, surge capacity in the hospital and meal programs for those in need.
That means the city will likely face a bigger deficit and more budget cuts in upcoming budget cycles.
Tuesday’s report comes just one month after the mayor and board closed a $ 1.5 billion deficit that was largely caused by the pandemic. The result was a delicately balanced $ 13.1 billion budget, which assumed that voters would pass Prop. F, the economy would somewhat recover and that the federal government would continue reimbursing the city for some COVID19 expenses.
“The magnitude of the shortfall we are projecting should be manageable by the mayor and the board with careful attention for the remainder of the fiscal year,” Rosenfield said. But “greater challenges lie ahead as we plan for following years.”
In the next fiscal year, the city will also be on the hook for about $ 185 million worth of wage increases for thousands of city workers, ranging from City Hall legislative aides to nurses at Laguna Honda Hospital.
During the last round of budget negotiations, the supervisors funded $ 37 million worth of raises in the current fiscal year by dipping into the city’s reserves. Breed sharply criticized the board for that decision, saying it could further destabilize the city’s fragile budget. The mayor’s office, police and fire departments have agreed to defer their wage increases for the next two fiscal years.
“These are the exact projections I was worried about,” said Supervisor Catherine Stefani, the only supervisor to vote against the budget this fall. “It was clear that COVID19 wasn’t going anywhere.
We absolutely have to be fiscally responsible in order to ensure that we can provide our residents with the services they deserve.”
Meanwhile, small bright spots in the current fiscal year include higher than expected property tax revenue, as well as $ 11 million generated from the newly passed Proposition I, an increase to the city’s real estate transfer tax.
That $ 11 million, however, may cause some tension in City Hall.
The Board of Supervisors committed to spending Prop. I revenue on affordable housing and COVID19 rent relief. But since it is a general fund tax, the controller automatically assumes it will go into the general fund and help plug the current deficit. If the money is used elsewhere, the board will have to find another way to make up the $ 11 million.
On Tuesday, Supervisor Dean Preston, author of the measure, doubled down on his commitment to use the Prop. I money as promised during the campaign. It is currently unclear how the board will fill that hole. But Preston said he is “confident” that they can balance the budget and also fulfill the promise of the measure.
“The Prop. I revenue is for rent relief and affordable housing,” Preston said in a statement. “... On behalf of our most vulnerable residents, we will ensure the revenue is used as intended.”