San Francisco’s already staggering budget shortfall could bust $1 billion if the city isn’t reimbursed promised federal dollars — a source of deep uncertainty as President-elect Trump reportedly considers playing hardball with cities that resist his planned mass deportations.
That’s one risk identified in a document outlining San Francisco’s dire budget outlook, released Tuesday by the mayor’s office.
The projected shortfall, previously estimated at $800 million, is now estimated at $867 million between 2025 and 2027. The report cautions that the shortfall could grow significantly larger if federal funds, including roughly $244 million in FEMA disaster aid, don’t come through. There are also potential Medicare and Medicaid changes that would strain local health services, the document warned.
“Trump-era economic policies have unknown future impacts to the city and national economies,” the mayor’s office noted.
Seeing a worsening budget, Mayor London Breed on Tuesday asked city departments to draft proposals, due in late February, for permanently reducing 15% in spending. That’s the steepest direct spending reduction she has asked for during her tenure as mayor.
The cuts aren’t meant to be prescriptive; rather, they are seen as a menu of options for Mayor-elect Daniel Lurie to choose from after he’s sworn in next year.
Empty downtown offices are depriving San Francisco of needed tax revenue. Breed closed the budget deficit this year, plugging many of the holes with one-time funds — like federal disaster relief – which are dwindling, the new memo shows.
Trump’s advisers are pushing him to use federal purse strings as leverage if cities don’t cooperate with U.S. Immigration and Customs Enforcement’s mass deportations, the Washington Post reported last week.
Other budget risks loom for San Francisco: The state could claw back education tax windfalls the city has benefitted from in recent years, businesses are appealing taxes to the tune of $400 million, and declining property values could further lower tax revenue.
Even without a threat from the Trump administration, San Francisco’s rate of spending means its deficit will grow to $1.4 billion by 2029 if revenues don’t recover or the city fails to curtail its expenditures.
That means Lurie may need to prepare for steep budget cuts, though he indicated there might be other ways forward.
“The budget deficit is a crisis that we must face head-on, and it will require us to make difficult decisions,” Lurie said in a statement. “We can’t simply cut our way out of this nor can we balance the budget on the backs of working people. We need to stop spending more than we can afford while prioritizing investments that are critical to a full economic recovery and the maintenance of essential services.”
Breed’s memo to city departments signals a dire situation. Beyond the 15% reductions, the mayor asked them to suggest layoffs if necessary — the first time her office has done so.
“Layoffs are not preferred, but if necessary to meet target, please identify specifics in budget submission,” the directive states.
The mayor’s office also directed departments to rethink the roughly $1 billion in grants the city disburses to nonprofits annually. Departments should “only fund” community-based organizations that demonstrate “strong outcomes” and focus on direct service, Breed’s office wrote.
Breed this year froze funding for some nonprofits, citing the budget crisis. Some organizations warned they’d be forced to lay off workers without the promised funds. A group of more than 150 organizations and unions sent a joint statement to The Standard, saying splitting nonprofit funding among different types of organizations pits them against one another. Some organizations don’t provide direct services, they argued, but help city residents utilize San Francisco’s complex web of benefits. Sometimes there is little distinction between direct services and education services, like nonprofit tenant outreach programs.
“If a provider meets a tenant in their own residence this would be considered outreach while providing tenant counseling in a provider’s office would be classified as service provision,” the coalition wrote.
When budgets are slashed, the most vulnerable communities get hit first, the coalition wrote. They pointed to this year’s budget, which did not fund a language access program that would aid linguistically isolated communities in using city services.
“The city has created a complex care network and expects residents in crisis to navigate the system on their own,” the coalition wrote.