Cratered. Decimated. Tanked. Whatever word you use, the reality is the same.
San Francisco’s budget is screwed.
The deficit is an eye-watering $782 million out of a budget of $15.9 billion. Now, Mayor Daniel Lurie has the unenviable task of digging San Francisco out of that hole by slashing spending.
Lurie plans to balance critical priorities like public safety while gutting the budgets of other city departments. Residents could see service cuts, and 1,000 city positions might be eliminated. More than 100 people may be laid off.
It’s not going to be pretty. The Board of Supervisors and the mayor’s office are mandated to agree on a balanced budget by the end of July.
So, how did we get here? Was it pandemic-era pain that cracked and emptied San Francisco’s piggy bank? Yes — but it’s more complicated than that.
SF’s leaky budget was patched with one-time fixes
If the city government doesn’t have the money, it can’t spend it.
During boom times, as valuable tech companies planted local roots and property values exploded, San Francisco’s annual budget grew steadily, topping $13 billion by 2021. Then the pandemic hit, emptying downtown, killing tourism, and worsening a structural gap between spending and revenue. Temporary relief came in the form of emergency funds from the federal government.
Last year, Mayor London Breed faced a similarly dire deficit. Downtown is the city’s economic engine. As vacancies rose, tax income fell. Breed could have begun paring down the size of government, lessening the pain by doing so gradually over years.
Instead, she plugged the budget hole with one-time fixes to the tune of $1 billion, according to the controller’s office. It’s the budget equivalent of raiding your savings account to pay off your credit card debt, rather than trimming spending.
The controller’s annual revenue letter, an analysis of the mayor’s budget, tells the tale: Breed used $445 million in leftover funding from the previous year’s budget, $235 million in pandemic-era Federal Emergency Management Agency reimbursements, $138 million from the city’s fiscal reserve, and $137 million in short-term cost shifts, among other one-time uses, to forestall the worst.
“As one-time solutions are depleted, the structural budget gap will become larger, making future budgets more difficult to close,” the controller wrote.
Blame a political season in which budget cuts might’ve guaranteed losing the mayorship. Or blame rosy optimism, with Breed hoping she could forestall layoffs as a hollowed-out downtown revived itself.
No matter the reason, she bet big that the economy would recover. Spoiler alert: It didn’t.
Paying workers fairly is pricey
Breed’s contract negotiations with labor unions last year went surprisingly smoothly. There’s a reason for that: from visor-wearing clerks to meter maids, city workers got higher raises than expected. The cost of their benefits has risen, too.
Cynics pointed out that making unions happy was a sure bet to avoid messy public fights during a fraught election year. But in some ways, Breed’s hands were tied. Public workers’ wage growth is tied to inflation, by city charter mandate, and if negotiations were taken to arbitration, that would be a key factor in handing them a win.
The city has added thousands of workers over the past decade, and the costs of employing them has grown, too. No one is saying people shouldn’t get raises, especially in pricey San Francisco. And workers’ spiraling healthcare costs are a national problem. But city government spending is a balancing act. The money has to come from somewhere.
The tools at Lurie’s disposal include generating revenue from putting tax measures on the ballot, using one-time funds while waiting for revenue to right-size, and laying off workers. Lurie has said — repeatedly — that he will not employ one-time fixes to balance the budget.
That’s why Lurie has signaled that for the first time in more than a decade, city workers may lose their jobs.
Property owners want their money back
Sure, downtown businesses emptied out like a keg at a frat party, but the pandemic hurt our finances in other ways, too. As commercial landlords watched the rental market dry up, they appealed to the city to lower their tax burdens.
Taxes are based on the property’s assessed value. A new assessment may mean lower taxes — a boon for owners but a pain point for the city. Property taxes are the city’s largest source of tax revenue, bringing in billions annually.
During economically stable times, there are 1,000 to 2,000 annual property value appeals, according to city data compiled by local think tank SPUR. But right now, there are a whopping 9,000 appeals pending. More than $217 million is being tucked away just to meet the demand of these appeals, according to SPUR.
The federal government stiffed us
San Francisco spent big on public health efforts during the pandemic. FEMA was on the hook to pay the city back, but it has been dragging its feet. In the latest revenue forecast, from March, the city controller projected that reimbursements for the 2025-26 financial year would be reduced from $147 million to $80 million. This week, the controller’s office confirmed to The Standard that the forecast was accurate.
It could get worse.
Roughly $2 billion in federal spending winds its way through San Francisco’s budget, and all of it is vulnerable to President Donald Trump’s whims. Lurie has pledged a $400 million reserve specifically to guard against federal meddling, Mission Local reported.
The numbers are worse than they look
Many San Franciscans have at some time publicly bemoaned, “Why can’t the city pay for that thing we love with its $15 billion budget?”
It ain’t that simple. Most of San Francisco’s budget is legally locked into a specific purpose: immutable, unchangeable. The reasons vary.
For instance, roughly one-third of the budget is thought of as a “pass-through” from federal and state governments, intended for a specific use, like Medi-Cal. Another constraint is voter set-asides. These are the alphabet-soup ballot measures that voters approve regularly. These propositions run the gamut, ranging from a new tax that can be spent only on Free City college for residents to setting aside a certain amount of the general fund to bolster Muni as it hemorrhages riders.
Then there are the enterprise agencies, which raise their own money for internal use only. Those departments include the San Francisco International Airport, Port of San Francisco, San Francisco Municipal Transportation Agency, and San Francisco Public Utilities Commission. Those agencies add up to billions in the city’s budget.
Tally all that up, and only a scant 18% of the city’s budget, or $2.8 billion, is free for a mayor to sift about as needed — making plugging the $782 million deficit an even more challenging prospect.