Mayor Edwin M. Lee today introduced at the Board of Supervisors the City’s Five Year Financial Plan for Fiscal Years (FY) 2015-16 through 2019-20. Over the next five years, the Financial Plan predicts that the City will experience continued economic growth which will in turn support continued but slower growth in tax revenues. The production and release of the Five Year Financial Plan was moved to the Fall this year so that the City’s two-year budget, currently under development, could benefit from the long range planning information in the Plan.

“San Francisco’s broad-based recovery is supported by our sound economic policies and fiscal prudence,” said Mayor Lee “And, while the City is in a much better fiscal position than it was in just four years ago, our new challenge is to ensure more San Franciscans feel the benefits of a good economy. We must also address a growing population and remain committed to those sound fiscal policies that have allowed us to better serve our residents.”

The Five Year Financial Plan is required under Proposition A, a Charter amendment approved by voters in November 2009. The City Charter requires 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 and corresponding resources for City departments.

In 2011, when Mayor Lee took office, the City’s deficit was projected at $382 million and the unemployment rate was 9.4 percent; today, projected deficits over the next two years are both below $100 million and unemployment has fallen to 4.3 percent.

The Five Year Financial Plan shows that the cost of City services is projected to outpace revenue growth during the next five year period. Total expenditures are growing by $984.7 million over the next five years, which represents an increase of 23 percent. Over the next five years, employee salary, pension, and fringe benefit costs are growing by $340.6 million (35 percent of total expenditure growth) and Citywide operating costs are growing by $402.0 million (41 percent of total expenditure growth). In contrast to this expenditure growth, available General Fund sources are projected to grow $566.9 million over the same period, for an overall growth of 13 percent. If the City does not take corrective action, the gap between revenues and expenditures will rise from $15.9 million to approximately $417.9 million from FY 2015-16 to FY 2019-20.

As required, the City will need to implement strategies to close the gap between sources and uses and preserve and strengthen fiscal stability. The plan proposes a package of moderate, balanced solutions to address the gap including capital and debt restructuring, managing employee wage and benefits costs, identifying additional revenues, limiting non-personnel inflation, and implementing ongoing department solutions. The fiscal strategies, if implemented, will still allow the City’s budget to grow by 18 percent over the next five years, which is less growth than the 23 percent currently projected, but still represents significant growth over the next five years.

New to the Plan this year is a more detailed focus on the potential impact of an economic downturn on the City’s five year outlook. The City’s base does not assume an economic downturn due to the difficulty of predicting recessions. However, the City has historically not experienced more than six consecutive years of expansion and the current economic expansion began over five years ago. The likelihood of a slowdown or a decline in revenue growth is increasingly likely in the next five years. If an economic slowdown were to occur, the proposed fiscal strategies would be insufficient to close broader gaps between revenues and expenditures. In such an event, the City would be required to take more significant measures to bring budgets back into balance.

Significant departmental issues identified in the Plan include:
•    Public Protection: Multi-year hiring plans at the Department of Emergency Management and the Police, Fire, and Sheriff’s Departments; and the continued planning and construction of large capital projects through the City’s General Obligation bond and General Fund debt programs, as well as the on-going costs associated with these large one-time investments.
•    Public Works, Transportation & Commerce: Planning and construction of large-scale development and capital projects, including implementation of the new Transportation and Road Improvement General Obligation bond; maintaining and improving the condition of the City’s streets and public right-of-way; improving services to businesses; and investing in vibrant, diverse neighborhoods.
•    Human Welfare & Neighborhood Development: Continued expansion of Medi-Cal under the Affordable Care Act; the implementation of the newly renewed and amended Children and Youth Fund and Public Education Enrichment Fund; and continuing to monitor and adapt to large fiscal and policy changes enacted at the state and federal levels.
•    Community Health: Managing the implementation of the Affordable Care Act; completing the SF General Hospital rebuild project in addition to planning for other capital projects; and modernizing legacy information technology (IT) systems.
•    Culture & Recreation: Preserving and improving recreational and cultural assets, including the implementation and completion of projects such as the Veterans Building seismic upgrade and improvements project, the Branch Library Improvement Plan, and capital projects tied to the Clean and Safe Parks Bond; and aligning services and operations to match growing demand at parks and libraries.
•    General Administration & Finance: Continuing to implement major housing initiatives through the Mayor’s Office of Housing and Community Development and City Administrator’s Office; implementing major technology system replacements and improvements in a number of departments; and strengthening in-house capacity of investment staff at the Retirement System.

For more information on the Mayor’s Proposed Five-Year Financial Plan for Fiscal Years 2015-16 through 2019-20, go to: http://sfmayor.org/index.aspx?page=880.