San Francisco’s Deficit Swells to $780M in Latest Sign of Budget Distress

San Francisco's budget deficit is expected to get worse amid uncertainty about federal reimbursements and the pace of the city's economic recovery.

In new projections issued by the Controller's Office late Friday, budget analysts pegged the budget deficit for the upcoming fiscal year at $290.9 million, $90.1 million higher than the city's last projection in January.

For the upcoming two fiscal years, the Controller's Office expects a shortfall of $779.8 million, $51.5 million higher than was projected in its January report.

In the coming weeks, the Mayor's Office, city departments and the Board of Supervisors will begin hammering out the details of the city's upcoming two-year budget cycle in what is expected to be a contentious session marked by serious belt-tightening.

In December, Mayor London Breed ordered city departments to cut 5% from their budgets in the next fiscal year and prepare for the possibility of further cuts as the city's longer-term economic prospects come into focus.

The Controller's Office cited uncertainty about reimbursements from the Federal Emergency Management Agency (FEMA) as one factor in the worsening fiscal outlook. Other factors included reduced real estate transfer taxes, given the impact of higher interest rates on property sales.

The office's business tax projections remain largely unchanged versus its January report, though analysts adjusted their expectations for office vacancies—a major factor in the city's fiscal picture with potential ramifications for property, business and sales tax revenue over time.

The analysts now assume office vacancy to peak at 33% in fiscal years 2025-2026, versus the prior report's peak of 28.8% in the prior fiscal year.