Controller: San Francisco faces revenue shortfall; board hears options including tourism district and accelerated capital spending

At a Committee of the Whole hearing on Oct. 21, 2008, Controller Ben Rosenfield and city officials told the San Francisco Board of Supervisors that the national financial crisis posed material risks to the city’s revenues and debt costs and outlined a set of short‑term and medium‑term responses.

Officials including Controller Rosenfield, the city’s chief economist Ted Egan, Public Finance Director Nadia Sasse, Treasurer Jose Cisneros and San Francisco Employees’ Retirement System Executive Director Claire Murphy described a range of scenarios and recommended actions that include accelerating public capital spending where feasible, forming a Tourism Improvement District (TID) to boost Moscone Center and hotel marketing, and temporarily easing small‑business fees.

Key findings and projections

- Ted Egan, the city’s chief economist, described several possible macro scenarios for the city, saying the most likely path was a U‑shaped national recession driven by a credit crunch that would reduce lending to businesses and slow construction and retail employment. “The next scenario and what I believe is the most likely scenario is what we might call a u shaped recession,” Egan said.

- Controller Ben Rosenfield told the board his office was preparing updated revenue estimates and said the city faced a current‑year revenue shortfall. Rosenfield said the controller’s preliminary range for a near‑term general‑fund revenue loss was in the tens of millions of dollars and that staff would provide a formal estimate to the mayor and board the next week.

- Rosenfield gave a ballpark current‑year range that could start around $70–$80 million in weaker scenarios and stressed uncertainty tied to the length of a credit freeze and declining transfer and sales taxes. He also noted the city’s new rainy‑day fund would be available under statutory conditions up to $125 million.

Debt, cash and pension presentations

- Nadia Sasse (Comptroller’s Office of Public Finance) reviewed the city’s debt portfolio, which is heavily weighted toward fixed‑rate debt and therefore relatively insulated; she reported approximately $145 million in variable‑rate exposure citywide and said most programs were manageable so far. The Airport Commission’s swaps wrapped by Lehman Brothers exposed the airport to about $173 million that required refinancing authorization.

- Treasurer Jose Cisneros reported a pooled investment portfolio of nearly $2.8 billion in high‑quality securities and said the portfolio carried no realized losses from broker‑dealer failures. He said roughly 70% of the city’s pooled portfolio was invested in Treasury‑ or agency‑backed instruments.

- Claire Murphy of the San Francisco Employees’ Retirement System said the pension fund remained sound as a long‑term investor and that actuarial smoothing reduces year‑to‑year volatility in employer contribution requirements. She said an actuarial study for 06/30/2008 was under way and that the retirement fund had adequate liquidity to pay benefits.

Policy recommendations and stimulus ideas

- OEWD Director Michael Cohen proposed a package of measures to mitigate local economic harm: (1) accelerate capital projects the city already has funded — including possibilities to shorten construction timetables and reprioritize ready‑to‑go jobs; (2) form a Tourism Improvement District to fund marketing and Moscone Center capital needs (preliminary projections of assessment revenue were roughly $27 million); (3) pursue measures to keep local dollars local (shop‑local campaigns, neighborhood marketing, expanded business improvement districts); and (4) consider temporary fee freezes or targeted tax credits to support small businesses and sectors that produce net new jobs.

- Joe D’Alessandro, president of the San Francisco Convention & Visitors Bureau, told the board that San Francisco’s convention and tourism sectors had remained comparatively strong and that the bureau was already expanding international outreach and neighborhood marketing.

What the board was asked to do

Rosenfield and Cohen asked supervisors to (1) authorize rapid formation work for a tourism improvement district to begin quickly; (2) consider a one‑year small‑business fee freeze or reduction study; and (3) work with departments to identify capital projects that can be accelerated without compromising procurement rules or long‑term debt strategy. The president scheduled a committee hearing on the proposed Tourism Improvement District for the coming Monday and asked the mayor and departments to cooperate on a fee survey and capital‑project review.

Why it matters

San Francisco’s economy — strong in tourism and professional services but exposed through its finance sector, construction and transfers — faces a heightened risk of revenue shortfalls as the national credit market tightens. The hearing offered supervisors concrete options for near‑term action and clarified where the city’s exposures and reserves lie.