The City's Budget 2003 - 2005

Projections for city budget challenges in 2003-2005

Urbanist Article

 

  • I'm usually pretty upbeat about the future for the City. And while I continue to believe we are a strong and healthy City from a long-term perspective, the short term look is pretty dismal.
  • Think back to last summer when we were all talking about a $350 million shortfall for the City's General Fund budget. How did we close the gap in the 2003-2004 budget?
  • Our employees gave back $80 million by agreeing to pay 7.5% towards their retirement costs
  • Departmental budgets were cut by $80 million
  • Earlier assumptions about State cuts of as much as $100 million were dropped to $30 million based on later estimates of the effect of state budget deliberations-dropping $70 million
  • About $120 million came from the use of reserves, fee increases, and other (mostly one-time) adjustments


what's happening now


In San Francisco, we can do a reasonable job of projecting our own revenues and expenses. Balancing the budget this way can be difficult, but we have always done it here.


But balancing around the uncertainty at the State level is impossible. Based on Governor Davis's proposed budget, we had projected an original shortfall from the State of $100 million. As the budget went through the legislature and amendments were made, we reduced the projected "state hit" to $30 million and set up a State Revenue Loss Reserve to cover it. At the last minute, the legislature changed a provision related to the car tax that cost us another $20 million. So the total State hit of $50 million took all of our State reserve of $30 million and most of the City's general fund contingency reserve-$20 million of the $25 million we traditionally set aside for mid-year budget corrections for overtime and other expenses.


Then our new Governor cancelled the car tax increase, which took away at least $90 million we were counting on. At the end of December 2003, it appeared this had been fixed. But who knows what the next twist will be. And the later in the year we hear about these statewide decisions, the more difficult it is to make adjustments.


2004-2005


The Mayor's Office is currently planning for a budget shortfall in the range of $210-$330 million for 2004-2005. This assumes $55 million growth in revenue, offset by:

  • $40 million less in beginning fund balance>
  • $65 million loss of one-time items used to balance 2003-2004
  • $25 million of fixed labor increases in contracts (police and nurses)
  • $55 million of increased employee health and retirement costs
  • $30 million of debt, welfare, and other costs
  • $50-$120 million State budget impact
  • $0-$50 million increase in possible retirement costs due to changed investment assumptions.

 


The $210 to $330 million shortfall assumes that employees will continue to contribute 7.5% of their pay towards their retirement. And it assumes that no one other than police and nurses who already have signed agreements will receive any wage increase next year. And it assumes no cost of living increases to health, human services, and other community-based non-profit providers of services to our residents. It is unclear how long we can continue these practices.

 

SO WHEN DOES IT GET BETTER?

Unfortunately we don't know for sure. Certainly we seem to have hit bottom on sales, hotel taxes, and investment income, so we expect them to start rising soon. The problem is that we fell off a cliff in 2001-2002 with drops of 20% to 30% in these revenues, and we are only looking towards growth of 5% or so per year-meaning it will take several years just to get back to 2001 levels. Add expectations that the commercial real estate market is starting to recover, but several years away from being robust. And the residential real estate market is doing well. This leaves us with a reasonably upbeat view of the local budget picture a couple of years from now.

Another serious factor affecting the City's budget is whether the state and federal government will continue to provide the support we currently receive from them. Look at the State of California's inability to figure out the solution to its budget problems. And the possibility of a $15 billion State bond on the March 2003 ballot without any new tax money to pay it off. We have to expect the State will make budget decisions harmful to local governments in the near future. Add the Federal government diving into an apparent death spiral by giving away tax revenues and increasing military spending, which has to result in lower health, welfare, and other domestic spending.

Once again San Francisco will have to decide whether it wants to continue its historic path of trying to protect the poor and infirm by backfilling state and federal cuts to provide the services our residents expect.

So Happy New Year with the hope that my dismal outlook is just Winter talking, and it will all look better in the Spring.

Ed Harrington is San Francisco's Controller.