San Francisco officials warn of widening budget shortfall; agencies told to prepare 10% cuts

San Francisco's budget director and controller presented an updated five-year financial plan Jan. 17 that projects a $245 million gap in the coming fiscal year, a $554 million shortfall the next year and a cumulative $1.3 billion deficit over the plan period if no further corrective action is taken.

Anna Dooney, the mayor's budget director, joined Carol Lou of the controller's office to lay out the assumptions behind the forecast. They cited slowed tax growth'notably transfer, hotel and sales taxes'high office vacancy rates, rising health-care and pension costs, new multiyear inflation assumptions for nonprofit contracts and depletion of one-time funds such as ARPA and FEMA reimbursements.

The presentation said weekly office attendance is roughly 50% of pre-pandemic levels and that office vacancies rose to about 30%-32% in late 2023, a trend that depresses property, transfer and business tax receipts. The forecast also incorporates higher health-care cost growth (9%-10%) and additional baseline costs such as the Student Success Fund.

Because revenues are projected to grow only 2%-3% while expenditures could rise more than 18% over the forecast period, staff told departments to prepare proposals to reduce general-fund support by 10% in each of the next two years and to submit contingency reductions in case the outlook worsens. Departments were also instructed not to add new full-time positions, to prioritize filling only critical vacancies and to apply a racial-equity lens when evaluating program changes.

Supervisor Connie Chan, the committee chair, said the numbers represent a critical juncture and pressed for structural changes, including contracting reform, consolidation of redundant services and a close six-month review of the plan. Community speakers during public comment urged lawmakers to spare homelessness, family services and early-childhood programs from cuts.

The committee filed the hearing for the record and will consider the mayor's budget proposals and department budget materials during the spring budget process. The five-year update will inform the Board of Supervisors' decisions as departments prepare budget submissions for May and hearings in June.