San Francisco faces a $100 million budget deficit next fiscal year despite a booming local economy, soaring real estate prices and a thriving technology sector, prompting Mayor Ed Lee to tell city departments to cut spending by 1.5 percent.
City department heads have begun discussing how to implement the budget cut for the fiscal year beginning July 1. The mayor has also asked department heads to cut an additional 1.5 percent for the following fiscal year which has a projected $240 million deficit. The City uses a two-year budgeting model.
The combined three percent spending cut “is roughly equivalent to the citywide impact of the increased pension costs that is now projected in each of the next two fiscal years,” according to Mayor Ed Lee’s Dec. 14, 2015, budget instructions. “The cumulative 3 percent savings proposal over the two years should be ongoing.”
City department heads must submit their proposed budgets to the mayor by Feb. 22. The mayor is required to submit a proposed city budget by June 1 to the Board of Supervisors for review and adoption.
In December 2014, as the mayor was heading into a re-election, he told city departments not to propose any cuts, looking at a more manageable deficit projection of $15.9 million for the current fiscal year. “The stronger financial position of the General Fund presents an opportunity for the City to make targeted, one-time investments that preserve the long-term fiscal health of the City,” Lee told department heads that month.
That process led to a current fiscal year budget of no cuts, but increased funding for spending priorities like hiring more police officers, keeping up with road repaving and boosting homeless services. This year’s budget totals $8.9 billion.
Pension costs are the main contributor to the deficit for the upcoming fiscal years, city officials say. The increase in pension costs are blamed on lower than expected investment returns, lower retiree mortality and the court striking down a new city provision related to cost of living increases.
But there are other factors. One-time cost saving measures for the current budget are set to expire. Voter-adopted baselines and set-asides, along with projected increases in citywide operating costs, have also played a role.
Departments don’t necessarily have to make cuts. They do have the option to try and generate more revenue to cover the value of the cut. “With prior approval from their Mayor’s Budget Office analysts, departments may use proposed and projected increases in revenues from fees and fines to meet their BY and BY+1 General Fund targets,” the budget instruction said.
Departments can also explore legislation to achieve savings. If they choose a legislative option, “departments should propose changes that achieve cost recovery, facilitate efficient service delivery and maximize returns on investment of City resources,” the mayor’s instructions said. “Examples of legislative changes include departmental and program reorganization, new proposals to contract for service delivery, and increasing fees, fines, and charges for service.”
The Ethics Commission is slated to discuss budget cut proposals today. A staff report says the reductions mean a $39,402 cut next fiscal year followed by a cut of $78,804. The Ethics Commission has an operating budget of $2.6 million, of which $2.2 million is for staff. The department has 19 positions, of which some are vacant, like one of the three investigator positions.
The Human Services Agency, which provides services like child-care and food stamps, for San Francisco’s lowest income, including homeless persons and seniors, announced a community meeting about the budget cuts beginning at 3:30 p.m. Thursday at the Born Auditorium, located at 170 Otis St.
“The City’s financial outlook remains positive, though the budget still needs corrective actions. Please join us for updates on the City’s funding projections and their impact on [Department of Human Services, Department of Aging and Adult Services and Office of Early Care and Education] programs.”
Mayor Ed Lee is expected to address the budget and other issues when he is sworn into office Jan. 8.