City projects $720M two-year gap; mayor instructs departments to find cuts

City budget officials told the Budget & Finance Committee on Jan. 25 that the five-year financial forecast shows a challenging outlook: a projected two-year general-fund gap of roughly $720 million and a longer-term growth in projected deficits driven by declining revenues and rising costs.

Director Dunning (Mayor's Budget Office) and Michelle Eller Smyth (Controller's Office) said the principal revenue risks are higher office vacancy rates, weaker property transfer and business-tax receipts and reduced availability of federal one-time funds used in recent years. The Controller's office presented conservative scenarios for office vacancy peaking above 25% and highlighted risks to assessed values and transfer tax if office values decline.

Expenditure pressures include continuing wage and benefit growth (including recent labor settlements), higher pension contributions after market changes, and ongoing human services and capital commitments. The Mayor's budget instructions ask departments to identify a 5% general-fund reduction in the first year and 8% in year two, prioritize vacancies to preserve core functions and prepare contingency plans should risks materialize further. Officials said they expect a beds report and other follow-up analysis in coming months and warned that the city's fiscal picture could worsen if the national economy weakens or state revenue actions reduce local funds.

The committee received public comment and the item was filed as heard; officials emphasized that departments will deliver detailed proposals under the mayor's instructions for review before the June budget adoption.