San Francisco Budget Deficit Nearly Erased by American Rescue Plan Act

San Francisco's budget shortfall has been nearly erased by relief dollars flowing from the American Rescue Plan Act, according to a report published by city analysts on Wednesday.

The federal relief bill signed by President Biden earlier this month could single-handedly prop up the city's short-term finances, which nosedived during the recession brought on by the COVID-19 pandemic. The city and county's projected two-year deficit now stands at $22.9 million, down from the $653.2 million shortfall anticipated in January.

"I can't even begin to tell you just how amazing this is going to be for San Francisco," said Mayor London Breed at a Wednesday event hosted by the Biden administration to celebrate the relief bill. "Even though our recovery is going to be long, this has definitely set us on the right path."

The pandemic dealt serious blows to vital sectors of San Francisco's economy. Office workers cleared out of downtown, small businesses shuttered and hotel rooms sat empty — all resulting in less tax revenue in city coffers.

Now, Breed said, she'll be able to craft a budget with supervisors with a lower likelihood of layoffs or service cuts.

"The deficit that we thought we were going to have to close, which would have resulted in layoffs, which would have resulted in a lack of support for small businesses, for artists, for our nightlife, our venues, our restaurants, and everything that a city is responsible for, those things are not going to be as problematic," Breed added.

But despite the federal aid, San Francisco's longer-term budget outlook remains cloudy.

The budget outlook released Wednesday projects a budget shortfall building up to $499.3 million by fiscal year 2025-26.

That's a result of increasing employee and retirement costs, along with funding minimums for specific programs mandated by voter initiatives. For example, Proposition B — approved by voters in 2014 — bases the minimum funding level for the San Francisco Municipal Transportation Agency on increases in the city's population and its "daytime population," which includes workers and visitors. The formula also includes population decreases, like the drop that occurred in 2020. That means the eventual return of office workers and tourists to the city will more than double the agency's budget baseline.

Breed will present a two-year budget proposal to supervisors by June 1, before signing a compromise budget, typically in August.

— Guy Marzorati