Budget office says March update raises near-term shortfall to about $780 million; FEMA timing is key factor

Supervisor Connie Chan, chair of the Budget and Appropriation Committee, convened a hearing on April 12 where budget staff presented a March update to San Francisco County's five-year financial projection and described an updated multiyear shortfall of about $780 million.

Budget director Anna Dooning of the mayor's office said the update keeps the same base-case assumptions used in January but shifts timing on several revenues. "The assumptions have not drastically changed," Dooning said, and added that "the first year got $90,000,000 worse. The second year got $38,000,000 better," producing the roughly $780 million two-year shortfall that staff are prioritizing ahead of the June 1 mayoral budget proposal.

Michelle Alersma of the controller's office described the revenue adjustments behind the update. She said property-tax receipts and some business-tax liabilities were modestly higher based on recent filings, while transfer-tax and office-activity assumptions remain weak because higher vacancy and lower transaction volumes persist. A critical driver, Alersma said, is the timing of FEMA COVID reimbursements: "There is no movement on our claims," she said, and staff moved expected FEMA receipts out of the first year into later years, which worsened the near-term picture.

On the expenditure side, Dooning said staff reflected required replenishment of reserves used to support recent police and public-works supplementals—about $50 million in the first year—along with rising health-care and retirement costs after an actuarial update increased retirement liabilities. Dooning also noted that staff have not assumed a long list of pending policy choices (including ongoing supplementals, expansion of shelter capacity and downtown ambassador programs) in the $778 million figure and that additional decisions could further increase local costs.

Committee chair Chan pressed staff on the rules for accessing the $380.3 million economic stabilization reserve. Staff said the reserve can only be used when the revenue line shows a year-over-year decline; because revenues are still projected to increase modestly year to year, the city is not yet eligible to draw that reserve under current rules, even though expenditures are growing faster.

During public comment, David Pilpel described the report as "sobering," urged clearer charter language linking deficit triggers to set-asides and MOUs, and suggested structural reforms—such as clustering smaller agencies and reviewing classification creep—to reduce administrative overhead. Pilpel thanked budget and controller staff for the analysis.

After the presentation and public comment, Chair Chan moved to continue the hearing "to the call of the chair"; Supervisor Shawan Walton seconded the motion. The clerk recorded five ayes and the motion passed. No final budget decisions were made at the hearing; staff said updated information (including the governor's May revise and pending memorandum-of-understanding negotiations) will inform the mayor's June 1 budget proposal.

The committee adjourned following the vote.