SAN FRANCISCO—San Francisco Mayor London Breed revealed on Monday, January 7, the release of San Francisco’s Five-Year Financial Plan for Fiscal Years (FYs) 2019-2020 through 2023-2024. According to the Mayor’s website, the Financial Plan projects that while San Francisco will experience continued strong, but slowing growth in tax revenues over the next five years, the cost of city services will outdo growth in tax revenues, resulting in ongoing structural deficits.
The city of San Francisco has to take corrective action, the projected gap between revenues and expenditures will increase from a deficit of $107 million in FY 2019-2020 to approximately $644 million by FY 2023-2024. The city’s budget deficit for the upcoming two fiscal years, FY 2019-20 and FY 2020-21, is projected to be approximately $271 million.
“We need to make sensible choices in the short-term because while we continue to enjoy good economic times and strong revenue growth, we know that we cannot expect that to continue forever,” said Mayor Breed. “I am committed to making sure we are helping the residents of our City who have the greatest needs, and that we are spending City funds effectively and efficiently.”
To ensure stability, the Financial Plan proposes a package of fiscal strategies targeted at slowing projected expenditure growth, including managing employee wage and benefit costs, limiting non-personnel cost growth, and capital and debt restructuring. These fiscal strategies, if executed, would still allow the city’s expenditures to grow by 16 percent over the next five years.
The Financial Plan does not assume excess Educational Revenue Augmentation Fund (ERAF) revenue in the forecast, though it was recently recognized as a windfall in the current budget year, due to the unpredictable nature of the funding source.
The report does note that the United States is experiencing the second longest period of economic expansion since World War II and if an economic slowdown or loss in state or federal revenue transpired, the fiscal strategies outlined in the Financial Plan would not be sufficient to close the large gaps between revenues and expenditures. The Financial Plan includes an assessment of the potential impact of an economic downturn on the City’s five-year outlook.
Since the last economic recession, important efforts and policy changes have been made to improve San Francisco’s financial standing and better guard against the next financial downturn. San Francisco is still facing a persistent structural deficit, largely due to increases in employee costs, increases to voter mandated baselines and set-asides, and growing required contributions to support existing entitlement programs.
The Financial Plan projects that available General Fund revenue sources will increase by $759 million, roughly 14 percent over the next five years. Total expenditures are projected to grow by $1.4 billion, or 25 percent, during the same time frame, including: $598 million in employee salary, pension, and benefit cost growth (43 percent of total expenditure growth); $401 million in citywide operating cost increases (28 percent of total expenditure growth); $239 million in baseline and reserve growth (17 percent of total expenditure growth); and, $165 million in other departmental operating cost increases (12 percent of total expenditure growth).
The Five-Year Financial Plan is required under Proposition A, a charter amendment approved by voters back in November 2009. The City Charter demands the plan to forecast expenditures and revenues during the five-year period, propose actions to balance revenues and expenditures during each year of the plan, and discuss strategic goals for City departments. The Financial Plan is co-authored by the Mayor’s Office, the Controller’s Office, and the Board of Supervisors’ Budget and Legislative Analyst.
Mayor Breed is expected to submit a balanced budget to the San Francisco Board of Supervisors by June 1.