San Francisco Chronicle - (Sunday)
‘Worstcase scenario’ could get even worse
It’s the rare San Franciscan who looks around our troubled city and thinks, “Gosh, our leaders sure do spend my tax money well.”
Grime covers our sidewalks. Potholes dot many streets. Buses arrive late. Construction projects continuously get delayed. And, of course, our homeless crisis just gets worse.
All that was true when San
Francisco was rolling in cash, the economic envy of cities around the world with its $12.3 billion annual budget making it richer than many states. You know, back in early March, all those many eons ago.
Now that the COVID19 public health calamity and the resulting economic crisis have struck like twin disasters, the city budget outlook has grown
dire — even more so than the city’s top money man had previously projected. And we can expect our already iffy city services to take a beating.
Controller Ben Rosenfield acknowledged in a frank interview that his previously announced worstcase scenario of a $1.7 billion budget hole over the next 26 months isn’t the worstcase scenario at all.
“There’s a risk that even that $1.7 billion dollar number is too optimistic,” Rosenfield said. “I’ve stopped defining worstcase scenarios because they keep getting worse every week.”
That already alarming figure is based on the assumption San Francisco continues to flatten the curve on the coronavirus, the economy continues to reopen safely and successfully and life gradually returns to some semblance of normal.
If the road to recovery is bumpier and revenue comes in 5% lower than projected, we can expect a $2.1 billion budget hole over the next 26 months, Rosenfield said. And if the recovery is “Wshaped” with another major virus outbreak followed by another economic plunge, we can expect a $2.5 billion gap.
Isn’t 2020 grand?
The city’s previously thriving tourism sector — the city’s largest industry, generating more than $8 billion a year — has nearly evaporated.
Typically, the city can count on $100 million a quarter from the hotel tax alone, but Rosenfield said he’d be surprised to receive $10 million this quarter. Nobody’s coming here, and residents are still instructed to stay home as much as possible — meaning sales taxes and parking taxes have also plunged.
“Those are the ones we’ve really seen falling off the cliff immediately,” Rosenfield said, adding other taxes will shrink over the longterm, including property taxes assessed on office buildings, which aren’t expected to be as valuable anymore. Business taxes will probably shrink, too, with some companies trimming staff, moving or closing altogether.
Mayor London Breed has directed her department heads to cut their budgets by 10% for the 202021 fiscal year and by an additional 5% the year after that, but Rosenfield said those cuts will only cover 25% of the gap.
So where will the other 75% come from?
“That’s the rub,” Rosenfield said, saying drawing down rainyday reserve funds and delaying capital projects and equipment purchases will occur, but even that won’t be enough.
Other possibilities include deeper cuts to departments or raising taxes.
Breed has also told department heads to hire no new employees unless they’re needed for direct COVID19 response.
The budget process has been delayed by two months to cope with all this uncertainty, and the mayor won’t sign the new budget until Oct. 1.
It’s still very unclear what that new budget will look like, but Rosenfield said choices made during previous recessions can give some idea of what could be in store.
Those have included streetcleaning reductions; fewer open hours at museums and recreation centers; health services trimmed; more contracting out of city services, rather than paying fulltime employees to do them; slowing or suspending police academy classes; “browning out” fire stations, meaning fewer are in operation at any given time; slowing the pace of repaving streets and taking longer to answer 311 calls.
Rosenfield has seen many city budgets, having worked at City Hall since 1997. He worked as an analyst in the mayor’s budget office under Mayor Willie Brown, as budget director for Brown and Mayor Gavin Newsom and as a deputy to City Administrator Ed Lee before being appointed controller by Newsom in 2008. He was appointed to another 10year term by Mayor Mark Farrell in 2018.
In those 23 years, he’s helped the city weather two previous recessions, but this third one is by far the worst. And the sudden shock of it makes it all the more challenging, leading to sleepless nights, early mornings and holing up in his basement to work and read, Rosenfield said.
“I’m not the one who will be making the hard choices — that will be the mayor and the Board of Supervisors,” he said. “But nonetheless our office is working to understand where we are financially, to work up ideas to help solve parts of this problem and to help offer sound advice is a lot at the moment.”
There’s really no good news. Unemployment in San Francisco is worse than it’s been since records were kept, with one in seven workers out of a job and many others furloughed or coping with cut hours. Before the pandemic, just one in 50 workers in the city was unemployed.
The city must spend more money to respond to the public health and economic disasters while also seeing its revenue dry up; it’s now spending an extra $4.8 million a day on the coronavirus response. The economy isn’t expected to recover until 2023 and employment might not recover until after that, Rosenfield said.
Rosenfield said comparisons to the Great Depression are not off base.
“It’s less of a recession than it is a natural disaster,” he said, referring to the sudden shock of the economic hit.
Except, he said, natural disasters like earthquakes are over quickly and then the recovery begins almost immediately. The virus, on the other hand, is expected to pose major problems until a vaccine is created and widely available, which could take years.
And even then, the economic future of the city is unclear. Will the tech industry cease to be such a powerhouse for the city with so many of those workers expected to continue to work from home forever? When will tourists and conventioneers feel comfortable returning in big numbers to fill our hotels and restaurants?
If the stock market weakens, which Rosenfield anticipates, how much money will the city have to cough up to fulfill its pension requirements? Currently, it’s funded its pension obligations to the tune of 90%, but that could change.
In other words, if you thought those potholes and late buses were aggravating before, you haven’t seen anything yet.