Mayor's five-year financial plan: Budget office warns of $876 million two-year shortfall, orders 15% reductions and hiring freeze

The Mayor's Budget Office told the Budget & Finance Committee on Feb. 5 that the city faces a widening fiscal gap driven by expenditure growth that outpaces projected revenue increases. Benjamin McCloskey, interim director of the Mayor's Budget Office, said the office projects a two-year general-fund deficit of $876,000,000 (approximately $253,000,000 in the first year and $623,000,000 in the second year) and $1.7 billion in expenditure growth versus $520 million in projected revenue growth over the next five years.

McCloskey and the Budget Office outlined key assumptions informing the forecast: modest economic and revenue growth (no recession assumed), shifts in business tax timing tied to voter-approved measures, slower property-tax and hotel-tax recovery, projected salary-and-benefit increases (labor agreements and CPI assumptions), and an assumed $50 million annual cost related to approved November 2024 ballot measures. The forecast also assumes FEMA reimbursements of roughly $234 million in FY25 and FY26; the Budget Office and Controller warned that FEMA and other federal funding remain uncertain.

Mayor Lurie's supplemental guidance reaffirmed previous instructions to departments to maintain core services and to seek operational efficiencies, but added directives including a citywide hiring freeze effective Jan. 9 through the end of the fiscal year, a pause on new contracts or programs that have not yet been implemented (with a process to request exceptions), and an expectation that departments submit proposals that achieve a 15% ongoing general-fund reduction starting in FY25-26. Departments were also told to prepare grant-level performance data for potential review by the Mayor's Budget Office.

Supervisors used the hearing to question the Mayor's Budget Office and the Controller's Office about the hiring freeze's treatment of grant-funded and temporary positions, pension return assumptions (7.2% assumed rate of return cited), and whether contract consolidation and redundancy elimination across departments (for example in housing programs) would be pursued. Greg Wagner, Controller, said the Controller's six-month report later this month will provide updated current-year revenue and expenditure projections and will affect available fund balance assumptions used in the five-year forecast. Committee members continued the hearing to the call of the chair to allow additional analysis and receipt of the Controller's report.