Mayor London N. Breed Releases Five-Year Fiscal Plan for the City and County of San Francisco
While revenue growth is projected to continue, steps must be taken to address structural deficits in future years
San Francisco, CA — Mayor London N. Breed today announced the release of San Francisco’s Five-Year Financial Plan for Fiscal Years (FYs) 2019-20 through 2023-24. The Financial Plan projects that while the City will experience continued strong, but slowing, growth in tax revenues over the next five years, the cost of City services will outpace growth in tax revenues, resulting in ongoing structural deficits.
If the City does not take corrective action, the projected gap between revenues and expenditures will increase from a deficit of $107 million in FY 2019-20 to approximately $644 million by FY 2023-24. 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.”
In recent years, strong revenue growth has enabled the City to overcome budget deficits while also restoring and increasing important services to the public. Looking forward, however, the City cannot rely on continued revenue growth at the levels experienced in recent years. To ensure stability, the Financial Plan proposes a package of fiscal strategies aimed at slowing projected expenditure growth, including managing employee wage and benefit costs, as well as limiting non-personnel cost growth, and capital and debt restructuring. These fiscal strategies, if implemented, 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.
While the Financial Plan does not assume an economic downturn or any loss of state and federal revenue, the report does note that the United States is experiencing the second longest period of economic expansion since World War II, rendering the likelihood of a slowdown or decline in revenue growth increasingly likely over the next five years. Should an economic slowdown or loss in state or federal revenue occur, 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. In a recession scenario, the City would need to utilize economic reserves and make expenditure reductions to balance the budget.
Since the last economic recession, significant efforts and policy changes have been made to improve the City’s financial standing and better guard against the next financial downturn. Despite these efforts, the City is 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, or 14%, over the next five years. In comparison, total expenditures are projected to grow by $1.4 billion, or 25%, over the same time period, 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 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 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.
The Mayor must submit a balanced budget to the Board of Supervisors by June 1.