San Francisco Budget Director Kate Howard predicted a $129 million deficit in fiscal year 2013-14

San Francisco still in deficit, but the budget hole is shallower than before

The City’s budget is still in the red — but it’s a lighter shade than in recent years, according to budget officials who on Tuesday released a slightly rosier economic outlook.

In its approximately $7.5 billion annual budget, San Francisco faces a projected $129 million deficit in fiscal year 2013-14, and a $134 million shortfall in 2014-15, according to Budget Director Kate Howard. The figures are dwarfed by last year’s projections, which showed The City $375 million in the hole for 2013-14.

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Howard attributed the improved fiscal picture to tax revenue from rapidly increasing property values; recent voter-approved city employee pension reform; and the impending overhaul of San Francisco’s business tax system, brought on by the passage of Proposition E in November. The latter measure dissolved The City’s payroll tax and reorganized the system to draw instead from a company’s gross receipts. Howard said estimates show the gross-receipts tax will generate $60 million over the next two years.

Still, budget officials are asking each city department to cut 1.5 percent of its total spending in each fiscal year. Last year at this time, those same departments were being asked to make a 5 percent annual reduction.

The persistent budget deficits can be attributed mostly to growing employee wages, as well as health care and pension costs, said Howard, who noted that such costs make up about half of San Francisco’s total budget. She said the total cost of The City’s 26,000 or so employees is expected to grow by $90 million in fiscal year 2013-14, and then an additional $90 million in 2014-15.

Howard said the budget also got a boost from other voter-approved revenue measures such as the $248 million bond for street fixes in 2011 and the November approval of a housing trust fund that grows from $20 million to $50 million annually over 20 years as a replacement for the shuttered Redevelopment Agency.

Mayor Ed Lee’s office called the budget figures welcome news.

“The mayor is happy that we are not talking about the steep cuts and significant shortfalls we have for several years now,” mayoral spokeswoman Christine Falvey said in a statement. “As far as the budget outlook, the mayor’s focus has been on recovering the local economy and job creation, which has helped improve The City’s bottom line, but he is still looking for efficiencies and better service delivery.”

dschreiber@sfexaminer.com

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