The Californer - American Rescue Plan Helps Reduce San Francisco's Two-Year Budget Deficit

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San Francisco, CA — A new report issued today shows that the projected deficit for the upcoming two-year budget is now $22.9 million, compared to the $653.2 million deficit that was projected before the American Rescue Plan was signed into law. This will allow San Francisco to avoid projected layoffs and cuts to basic city services that were projected due to the economic hardship caused by the pandemic.

The update to the City's Five-Year Financial Plan by the Mayor's Budget Office, the Controller, and the Board of Supervisors Budget and Legislative Analyst shows this change in projected deficit, and can be read here. In January, the projected deficit for the upcoming two-year budget stood at $653.2 million. The American Rescue Plan is expected to result in $636 million in one-time direct federal aid to San Francisco, which is largely responsible for closing the immediate projected shortfall. Additionally, modest projected increases in local tax revenue and reductions in the projected expenditures needed to support COVID-19 response programming have also contributed to slight reductions in the projected deficit.

The report also shows that while the new federal funds will help to address the immediate deficit that the City faces, an ongoing structural deficit of $350 million in FY 2023-24 remains that will need to be addressed since costs are projected to rise faster than revenue. Additionally, the City will still need to close the existing $22.9 million deficit in this budget cycle, which Mayor Breed will work to do while investing in her priorities around economic recovery, homelessness, mental health and addiction, public health, equity, and the City's COVID-19 response.

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"It's such a relief to have a federal government that is actually interested in helping our cities succeed rather than attacking us, and I can't thank President Biden, Vice President Harris, and Speaker Pelosi enough for their leadership during this unprecedented crisis," said Mayor Breed. "San Francisco led the nation in our response to COVID-19, and as a result we have the lowest death rate of any major city in the country. But just like other cities and states, our economy and our budgets have taken a huge hit that could have resulted in layoffs and massive service cuts. Thanks to the American Rescue Plan, we're now able to avoid those terrible choices. At the same time, we still have to fix the ongoing deficits that exist in future years. If we're not responsible in this budget cycle, we could find ourselves right back here again in the coming years facing the same terrible choices we have been lucky to avoid this time around."

Mayor Breed's priority throughout this pandemic has been to avoid layoffs of public employees, which would have inevitably resulted in a loss of services to San Francisco residents. That was accomplished in the last budget cycle, despite having to close a $1.5 billion deficit, in large part due to the fact that the City had set aside significant funding in reserves that were utilized to avoid the most difficult decisions around service cuts and layoffs.

While San Francisco's economy is projected to continue recovering, resulting in growing tax revenue, San Francisco still faces an ongoing structural deficit in future years. This is because expenses, such as rising employee costs, increasing voter-manded baselines and set-asides, increased costs associated with existing entitlement programs, and other growing citywide operating costs, continue to outpace the projected growth in revenue.

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While the deficit for the upcoming two-year budget is significantly smaller than initially projected, the third year of the projection, FY 2023-24, projects a budget deficit of $350 million, as the large one-time stimulus funding expires, and revenue growth does not keep pace with expenditure growth. The report notes that "to the extent that policymakers make choices that curtail ongoing spending increases, the City can avoid exacerbating these shortfalls and reduce difficult choices in the future, thereby maximizing the City's ability to maintain its services and programs for San Franciscans."

The City's budget process begins in the fall with preliminary revenue projections for the upcoming budget years. Then it proceeds as follows

In December, the Mayor's Office issues budget instructions to departments, which are based on the initial five-year financial report and contain detailed guidance on the preparation of department budget requests.
In mid-February, Departments submit proposed budgets to the Mayor and Controller.
From March through June, the Mayor's Office analyzes each budget proposal, examining policy and service implications in order to meet citywide needs, and reflect the Mayor's goals and priorities for the upcoming year. Concurrently, the Mayor conducts budget outreach to obtain feedback from the community on budget priorities and to ensure the budget reflects the City's collective priorities and voices.
By June 1st, the Mayor presents her balanced two-year budget proposal to the Board of Supervisors.
Through the end of June, the Board of Supervisors' Budget and Appropriations Committee then holds public hearings on the budget, and makes recommendations to the full Board.
In July, the budget is heard and voted on by the full Board of Supervisors, and returns to the Mayor for her approval, typically by August 1st.

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