San Francisco projects $108.1 million two-year surplus; mayor urges no net general-fund growth

Ashley Grafenberger, the mayor's budget director, told the Budget and Appropriations Committee that the city's fiscal forecast has improved and that her office is "projecting a surplus of $108,100,000" for the upcoming two budget years. The improvement reflects higher general-fund revenues, reduced pension costs after strong investment returns, and one-time funding sources included in the forecast.

Grafenberger said the forecast will inform the mayor's budget instructions, which emphasize restoring downtown vibrancy and improving core service delivery while not asking departments to increase their net general-fund support. "We are not asking departments to make reductions, but we are not asking departments to grow their general-fund support," she said, adding that changes greater than 5% in revenues or expenditures for certain enterprise departments would require board approval under a proposed two-year fixed budget cycle.

The forecast relies on a set of assumptions the mayor's office and the controller's office described at the hearing: inclusion of voter-approved taxes (including the recent transfer-tax measure, Prop I), use of federal relief dollars over a longer period, CPI adjustments for open labor contracts, and a modest reduction in the assumed pension investment return from 7.4% to 7.2%. Michelle Alersma of the controller's office said the transfer-tax measure (Prop I) was modeled to normalize around $450 million annually and that the executive-compensation tax was assumed at roughly $100 million once fully phased in, based on voter-pamphlet estimates.

Supervisors pressed staff on how the administration will translate revenue gains into neighborhood services. Supervisor Safai warned that many critical positions remain unfilled and asked how the city will meet the mayor's goals for cleaner streets with large vacancy levels in Department of Public Works. Grafenberger responded that the mayor has instructed departments to fill vacancies they have budget authority for and that the administration plans to convene HR, Public Works and labor to accelerate hiring and return recommendations to the committee.

Committee members and staff repeatedly cautioned that the projected two-year surplus does not eliminate out-year risks. Grafenberger and controller staff noted continued uncertainty around pandemic dynamics, downtown recovery (particularly hotel and business taxes), the eventual realized yields on pension investments, and possible state-level changes to ERAF, which they said could materially change long-term projections.

The committee filed the related hearings for the five-year plan and the mayor's budget instructions after the presentation.