Since 2011, Mayor Ed Lee has added more than 5,000 government jobs — but now he has ordered city departments to stop growing.
That’s one of the many signs that San Francisco’s economy is slowing down after years of growth built upon a surging technology industry.
But it also indicates how The City’s spending, driven largely by labor costs like pensions, is creating larger than expected budget deficits.
Despite the labor costs, the Mayor’s Office defended the job growth during the Board of Supervisors Budget and Finance Committee hearing Wednesday.
“This is a very large number of employees,” Melissa Whitehouse, the mayor’s budget director, told the committee. “We are not upset about this. We think this is a good thing. We’ve done so many good things with the board on this.”
The City added 5,090 jobs, an 18 percent increase, since fiscal year 2011-12 for a total of 30,626 jobs today — the highest number it’s ever been — across a number of city departments including Public Health, Muni and the Police Department.
To reduce spending, the mayor told departments last week to cut spending by 3 percent for the fiscal year beginning July 1 and to hire no new jobs.
Simply put, during the next five years “expenditures are projected to grow almost three times as fast as revenues.”
The City’s revenue growth rates since the tech boom are projected to slow down to rates of 3 to 4.5 percent, not the more than 7 percent or even the more than 12 percent seen in previous years.
The job growth rate in the tech sector as of August has dropped to “under 5 percent for the first time during this recovery,” City Controller Ben Rosenfield said. In August 2015, it was 15.4 percent.
One reason for the slow down, he said, was that San Francisco is “nearing capacity here in the city,” such as so little available office space and housing, and that has restricted the economic engine leading to “more normalized growth rates than we’ve seen for the majority of this recovery.”
The City’s budgetary concerns are factoring into labor negotiations with labor contracts up for all unions expect police and fire. Contracts are to be finalized by May 15.
Pension costs are once again part of the conversation with labor as they were when Mayor Ed Lee first got into office. One of his major efforts in 2011 was placing on the ballot Proposition C, a pension reform measure.
But those pension costs are rising again. The City is projected to spend on pensions $431 million in fiscal year 2021-2022, $171 million more than previously expected.
The increase suggests the mayor’s pension reform was not a success, but the Mayor’s Office says otherwise.
“If the mayor had not moved forward with pension reform at that time our costs would be been far worse today,” Whitehouse wrote in an email to the San Francisco Examiner last week.
The reason for the uptick is people are living longer and a group of retirees successfully sued The City over a Prop. C provision that wouldn’t award a pension cola until the system was fully funded.
Another cost escalation is the return of investments has been lower than the assumed 7.5 percent in the past two years with a return of 4.5 percent two years ago, and last year 1.5 percent.
More budget details are expected soon. The City is expected to release its five-year financial plan as early as today.
As The City works to bring its financial house back into balance another unknown is when is the national economy will head into a recession. If there is no recession after the fiscal year 2021-2022, that “would mark the longest expansion since 1900 and exceed it by three years.”