Ten years ago, Mayor Ed Lee signed off on a city budget of $7.9 billion, the largest in city history at the time and yet still described by then-budget director Kate Howard as about being “fiscally disciplined” during good financial times.
Fast forward to 2023. More than any other city, San Francisco has been ravaged economically by the Covid pandemic. A tech-focused economy pivoted quickly to remote work and stayed there longer, with almost half of workers working from home, decimating Downtown foot traffic and tax revenues. Tens of thousands of residents moved out of town.
But last month, Mayor London Breed signed off on a $14.6 billion budget—another record high.
This led one of our readers to ask: Why is next year’s San Francisco city budget (roughly) double the budget of a decade ago with only a minimal change in population?
Between 2013 and 2021, San Francisco’s population actually decreased from 839,695 to 815,201.
To be needle-nosed about it, San Francisco’s budget hasn’t quite doubled in 10 years. But it did go up 85%, which is still remarkable considering the city’s population declined by 7%. And San Francisco isn’t alone in massively expanding its coffers in recent years: The budget of neighboring San Jose, whose population went down about 4% during the same period, actually did double.
Perhaps the first question to answer is: Why is San Francisco’s budget so large in the first place?
One answer routinely offered is that San Francisco is both a city and a county and, as such, has some agencies that might otherwise be seen as duplicative. San Francisco has both a police department and a sheriff’s department, for one example. For another, every member of the Board of Supervisors has an additional title as a commissioner on the board of the San Francisco County Transportation Authority, which has its own large staff.
It also contains so-called “enterprise departments,” such as the Port of San Francisco, San Francisco International Airport and the San Francisco Municipal Transportation Agency, that generate their own revenues and are largely self-supporting through their business operations.
Other aspects of the budget are locked in by voter mandates, leaving only a fraction of the total budget that is considered discretionary.
Another answer is labor costs—paying the city’s full-time employees accounts for almost half the budget. The Bay Area, let alone San Francisco, is a very expensive place to live—and the city’s workforce has also grown considerably in recent years. In 2013, the city and county employed roughly 29,500 full-time workers, whereas the new budget authorizes 36,600 full-time positions. That’s a 24% increase.
According to data provided by the Controller’s Office, the category of workers that saw the largest increase in full-time positions—over 38%—in that period was what the city calls “Human Welfare and Neighborhood Development” and included the 2017 creation of the Department of Homelessness and Supportive Housing.
So, how did we pay for all this?
San Francisco is legally required by the state to balance its budget every year, and the rise in expenditures the city has experienced was funded by a rise in revenues. For instance, according to the most recent Annual Comprehensive Financial Report issued by the controller, property tax levies and collections increased about 97% from 2013 to 2022.
But the city can’t necessarily bank on that level of growth in the post-Covid world.
This year, San Francisco was able to balance its budget, despite a monster projected deficit of $780 million, in part by relying on reserve funds and Covid-related federal reimbursements that totaled almost $1 billion. But that was a one-time lifeline before the city must confront the likelihood of a slow fiscal recovery.
According to the latest revenue letter from the controller, the city now faces a structural funding gap of over half a billion dollars. The most volatile sources of tax revenue, such as sales and hotel occupancy taxes, are expected to remain below pre-pandemic levels. Federal Covid aid is petering out.
That means that even with hypothetical reversals of fortune, like Downtown office work becoming in vogue again or huge business investments gained by hosting this year’s Asia-Pacific Economic Cooperation conference, the next budget cycle is going to be much harder to work through.
Mike Ege can be reached at firstname.lastname@example.org