Mayor Breed orders belt-tightening as budget deficit grows

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San Francisco’s budget deficit is poised to spark a major debate about what’s being funded and what’s being cut as city departments gear up for some serious belt-tightening.

A combination of rising spending and shrinking revenue has left the city with a $728 million deficit, according to the latest projections, and London Mayor Breed’s office has ordered departments to cut spending and brace for the worst.

To balance the budget, Breed ordered departments to cut their budgets by 5% in the next fiscal year and 8% next year, while maintaining key policy priorities including public safety, reducing homelessness and promoting economic recovery. However, it is clear that serious compromises are needed.

“I’m telling departments and everyone else in the city that things can get even worse,” Anna Duning, the mayor’s budget director, said at a committee meeting on Wednesday. “We may have to go back to the departments for more. I think there are many tough choices ahead.”

The city’s budget has been hit hard by falling business revenue and property taxes as telecommuting has emptied downtown offices.

Declining commercial real estate values ​​could further lower property taxes – the city’s biggest cash cow – amid what officials are calling a “permanent retreat” from downtown offices. The number of property appraisal appeals is expected to rise from 2,592 last fiscal year to approximately 3,800 in fiscal 2024-2025.

The city is currently relying on a “conservative” estimate for office vacancies, which shows a peak of around 29% this year before declining to 22.6% by the end of 2026.

This is accompanied by a drop in the cost of housing, especially in the condominium market. Budget officials expect apartment prices to fall over the next few years but recover by 2027.

According to a draft five-year financial plan, the City projects a deficit that will grow from $200 million annually to $1.2 billion over the next five fiscal years.

During the same period, city spending is set to rise by $1.43 billion, up 21% from the current fiscal year.

Wages and benefits for city workers are expected to increase by $491 million, citywide operating costs by $515 million, and departmental spending by $215 million.

New labor contracts approved last year gave urban workers a 5.25% pay rise this year, exacerbating earlier wage increases initiated during the pandemic. Pension contributions, once flourishing in the stock market, kept low, should also rise as markets stagnate.

The state was running its own budget deficit, and Duning raised the possibility that state officials could cut San Francisco’s education revenue boost funds — excess property tax revenues shared with local governments after schools are funded — that are worth over $300 million.

While the city has implemented new fiscal stability and resilience programs since the Great Financial Crisis, the budget forecast notes that “Unlike the severe budget deficits that followed the 2001 and 2008 recessions, the current forecast reflects longer-term structural problems. , even in the absence of another recession.

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