Mayor Edwin M. Lee introduced at the Board of Supervisors the City’s Five-Year Financial Plan (Financial Plan) for Fiscal Years (FY) 2017-18 through 2021-22. Over the next five years, the Financial Plan projects that the City will experience continued economic growth; however, the plan also notes that revenue growth is slowing.

The Financial Plan shows that the cost of City services is projected to outpace revenue growth during the five-year period. If the City does not take corrective action, the gap between revenues and expenditures will increase to approximately $848 million by FY 2021-22.

“During the last six years, I am proud that the City’s strong economic growth has allowed us to expand and improve city services – for instance, expanding MUNI services by 10%, increasing public protection staffing in line with our Public Safety Hiring Plan and improving the availability and quality of health and human services for the City’s most needy. However, many uncertainties lie ahead,” said Mayor Lee. “Financial stability is central to the City’s ability to provide sustainable services to the public. Staying disciplined today will ensure we are more resilient as a City over the long term.”

“This report highlights the need for continued financial discipline inside of City Hall,” said Supervisor Farrell. “As a City we are going to have to make difficult choices, but along with the Mayor I am committed to making sure our City is on solid financial footing for the next generation of San Francisco residents.” 

The City’s budget deficit for the upcoming two fiscal years, FY 2017-18 and FY 2018-19, is projected to reach approximately $400 million. The Mayor submitted a budget rebalancing plan last week to address changes in revenues and expenditures following the November 2016 election.  This plan balances the need for increased spending on homelessness, street trees, City College and increased legal services for immigrants.

The Five-Year Financial Plan is required under Proposition A, a Charter amendment approved by voters in November 2009. The City Charter requires the Financial 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. The Five-Year Financial Plan is part of a comprehensive effort by the City to improve its long-range financial management and planning.

The City currently projects revenue growth of $560 million, or 11% over the five year period of this Financial Plan. Overall, growth rates are projected to continue slowing through the report period and the pace of revenue growth during the projection period will depend heavily on the strength of the national economy, local technology industry, and federal policy.

However, the Financial Plan shows that the cost of City services are projected to outpace revenue growth during the five year period. Expenditures are expected to grow by $1.4 billion, or 29% over the period. Over the next five years, employee salary, pension, and fringe benefit costs are growing by $698 million (50 percent of total expenditure growth) and Citywide operating costs are growing by $450 million (32 percent of total expenditure growth) and costs of voter-mandated baselines and set-asides are expected to grow by $212 million (15 percent of total expenditure growth).  If the City does not take corrective action, the gap between revenues and expenditures will rise from $119 million to approximately $848 million from FY 2017-18 to FY 2021-22.

As required, the City will need to implement strategies to close the gap between sources and uses and preserve fiscal stability. The Financial Plan proposes a package of balanced solutions to address the gap, including managing employee wage and benefits costs, capital and debt restructuring, 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 16 percent over the next five years.

The Financial Plan includes a detailed focus on the potential impact of an economic downturn on the City’s five year outlook. The average length of time between recessions in the United States has been about four years, and the current economic expansion began over seven years ago. The City is closely monitoring changes in the economy as well was federal funding. This report does not assume significant changes in funding from the federal government; however, particular areas of concern include changes or repealing of the Affordable Care Act and increased need for service or reductions in funding related to the City’s immigrant population and Sanctuary City status. The update to this report in March 2017 is likely to contain additional details on potential fiscal impacts at the federal level.

If an economic slowdown were to occur or the City experienced a loss of federal funding, the proposed fiscal strategies in this report 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.