Stimulus’ quick boost for city budget
The federal stimulus package whittled San Francisco’s projected budget deficit from $653.2 million to a more palatable $22.9 million over the next two years, City Controller Ben Rosenfield said in a new report Wednesday.
That’s a tremendous relief for City Hall, which was bracing for painful service cuts and layoffs before President Biden signed the $1.9 trillion American Rescue Plan this month. The package included $350 billion for state and local aid, $636 million of which went directly into San Francisco’s coffers, the report said.
It’s slightly more than Rosenfield initially thought the city would receive. He estimated earlier this month that the stimulus package would provide San Francisco with about $600 million and leave it with a $50 million hole. General cost increases, like contracts and new permanent supportive housing projects, account for the fact that there’s still a deficit.
But because the federal stimulus is only a onetime payment, San Francisco still has a projected $350 million deficit in fiscal year 202324. The projections for the following years are even more dire, with a cumulative deficit projection of $499.3 million by fiscal year 202526.
That looming deficit could shrink over the next
few years depending on how the economy recovers as it emerges from the pandemic. Still, given the temporary nature of the relief, the report cautioned that city leaders must balance the upcoming budget and try to not strain it with new, ongoing expenses.
“If we’re not responsible in this budget cycle, we could find ourselves right back here again in the coming years facing the same terrible choices we have been lucky to avoid this time around,” Mayor London Breed said in a statement.
Breed and the Board of Supervisors closed a $1.5 billion deficit last fall without any service cuts and layoffs. In December, Rosenfield projected that the city would face a $653.2 million deficit over the next two years due to weakerthanexpected revenue growth in the business and tourism industries, raises for city employees and increased COVID19 expenses.
The mayor ordered every city department to propose spending cuts by 10%. Many of the cuts would have impacted residents directly, such as fewer 911 operators and trial attorneys in the Public Defender’s Office.
“This time around, we weren’t going to be able to delay the hard decisions, and we were facing the reality that we were going to have to cut jobs, and likely a lot of them,” Breed said Wednesday at a virtual roundtable discussion on the stimulus package with U.S. Secretary of Labor Marty Walsh. “Cuts were inevitable.”
The federal stimulus was a boon to local governments around the country, as it helped plug major budget holes that were largely caused by the pandemic. The report said the federal stimulus, along with modest increases in local tax revenue and reductions in COVID19 expenses, are expected to help the city avoid the projected layoffs and cuts to services in the upcoming budget cycle.
As the economy slowly comes back to life, Rosenfield said the stimulus buys the city time to figure out how to address the future deficit.
But a longterm recovery depends on how quickly parts of the local economy bounce back — like tourism and downtown offices.
Rosenfield said business taxes likely will take a large hit this year as office workers continue to work remotely. Experts also do not expect tourism to return to prepandemic levels until 2025.
Another possible concern: property assessments, which impact the amount of tax revenue the city has to spend. While he does not expect the fallout to be as bad as he did a few months ago, Rosenfield said he expects to see a number of appeals that challenge the assessed values of downtown offices, hotels, retail properties and other buildings.
The city’s ability to maintain services and programs in the future depends on the spending decided on during this current budget cycle, he said. Over the next few months, the mayor and board likely will wrangle over new spending proposals on the city’s most pressing issues, from the increase of drug overdoses to public safety needs.
“To the extent that policymakers make choices that curtail ongoing spending increases, the City can avoid exacerbating these shortfalls and reduce difficult choices in the future,” the report said.