Local revenues projected to recover over five-year projection period, but is outpaced by expenditure growth, requiring action to address structural deficits in future years

City of San Francisco logoSan Francisco Mayor London N. Breed today announced the release of San Francisco’s Five-Year Financial Plan for Fiscal Years (FYs) 2021-22 through 2025-26. The Five-Year Financial Plan, released by the offices of the Mayor, the Controller, and the Board of Supervisors’ Budget and Legislative Analyst, projects that the City’s tax revenues will recover over the next five years as the City gradually recovers from the economic impacts of COVID-19. However, projections show that City expenditures will significantly outpace growth in tax revenues, resulting in ongoing structural deficits that require corrective action, such as identifying additional citywide and departmental expenditure savings.

The stark and immediate economic impacts of the COVID-19 pandemic that began in March 2020 have dramatically changed the financial outlook for San Francisco, contributing to the City’s projected structural deficit for the next five years. San Francisco’s local economy has fared worse than other large cities due to the pandemic’s outsized impact on tourism and small business sectors, as well as the effects of the lack of office workers downtown and in business corridors. Though revenues are projected to largely return to pre-pandemic levels over the next five years, the projected gap between revenues and expenditures will reach approximately $503 million in FY 2025-26 if the City does not take corrective action.

“As we respond to the urgent challenges of the COVID-19 pandemic and look forward to our economic recovery, we can’t lose sight of our long-term financial situation. While we’re hopeful the economic consequences of COVID-19 will become less severe as the vaccine rollout continues and we reopen once again, we still need to make tough choices now to ensure we’re able to provide the services that our residents depend on,” said Mayor Breed. “As our budget projections show us, we need to be disciplined in our spending and prioritize services that will provide meaningful, equitable outcomes for San Franciscans and that will support our recovery.”

The Five-Year Financial Plan projects that the deficit in FY 2021-22 is driven by delayed recovery of revenue, as compared to the previously adopted budget, as well as the need for continued emergency response programs. Revenues are expected to rebound as the recovery gains momentum and are expected to largely return to pre-COVID levels by FY 2025-26. However, revenues are not projected to grow faster than expenditures, resulting in ongoing structural deficits. Projected expenditure growth is driven primarily by growing employee costs, costs of voter-mandated baselines and set-asides, and other citywide operating costs. Additionally, uncertainty remains around the still-evolving impacts of the pandemic and vaccine adoption timelines, as well as around potential additional state and federal stimulus funding, all of which could further impact the size of the City’s deficit.

The economic impacts of the COVID-19 emergency, as well as growth of various other expenditures, result in a projected two-year budget deficit of $653.2 million. The Mayor must submit a balanced two-year budget to the Board of Supervisors by June 1, 2021. Over the course of the next six months, the Mayor will work with City departments, the Board of Supervisors, and other partners to bring costs and revenues into alignment in order to balance the projected deficit for FY 2021-22 and FY 2022-23.

San Francisco Administrative Code Section 3.6(b) requires that by March 1 of each even-numbered year, the Mayor, Controller’s Office, and the Board of Supervisors’ Budget and Legislative Analyst submit an updated estimated summary budget for the remaining four years of the City’s Five-Year Financial Plan. The next full update of the City’s Five-Year Financial Plan will be submitted in December 2022.

The Five-Year Financial Plan is available online here.