SF Faces $728M Budget Deficit Over Next Two Fiscal Years

San Francisco projects a budget shortfall of nearly three-quarters of a billion dollars over the next two fiscal years, with hundreds of millions of dollars in lower-than-expected property, business and real estate taxes contributing to the poor financial outlook.

Mayor London Breed’s office told city departments on Dec. 15 that it’s predicting a shortfall of more than $200 million in the upcoming 2024 fiscal year and a $528 million deficit the year after, according to the San Francisco Chronicle. The mayor is asking departments to prepare for budget cuts ranging from 5 to 8 percent during that time, the newspaper reported.

The forecast took into account the hundreds of millions of dollars in lower-than-expected property, business and real estate transfer taxes in the coming fiscal years, a result of high commercial vacancies and empty office towers in and around San Francisco’s downtown. Other contributing factors include the phase-out of one-time federal funds the city received to stay afloat during the pandemic; higher wage requirements for city employees due to collective bargaining agreements with unions; growing healthcare costs; and increased pension obligations.

The city expects revenues from real estate transfer taxes and property taxes to be about $574 million less than originally expected over the next two fiscal years, while business taxes are slated to be about $179 million below budget during that time. Those projected losses are six times greater than the expected $126 million surplus in sales and hotel tax revenues over the next couple of years, the latter reflecting a modest rebound in San Francisco’s tourism industry and one of the few bright spots for the budget.

The city should be on alert for its budget deficit to be “potentially significantly worse,” Wade Rose, president of business advocacy group Advance SF, told the Chronicle.

“We know it’s going to be serious,” Rose said. “It already is.”

The expected deficits cast dark clouds over Breed and the San Francisco Board of Supervisors’ efforts to reduce public drug dealing and overdose deaths, provide more housing and shelter to homeless people, and turn around a struggling downtown. Breed has publicly promoted the idea of luring new industries such as biotech to San Francisco’s urban core, while a Union Square business group is pushing for more flexibility in terms of allowed uses in the city’s main retail district.

The city of San Francisco isn’t the only government facing significant budget shortfalls. Oakland officials said this week that the city was facing a $200 million deficit over the next two fiscal years, the Chronicle reported. The state, meantime, is anticipating a $25 billion budget deficit over the next fiscal year alone.

— Matt Niksa