San Francisco first‑quarter budget report: officials project roughly $116 million shortfall amid pandemic

San Francisco finance officials told the Board of Supervisors’ Budget & Appropriations Committee on Nov. 18 that the city is tracking a first‑quarter general‑fund shortfall of about $116 million for fiscal year 2020–21, with roughly $51 million of early shortfalls concentrated in specific departments.

Ben Rosenfield, the city controller, and Michelle Allersman of the Mayor’s budget office presented the quarterly report and said the shortfall is driven largely by weaker‑than‑expected revenue as the local economic recovery has lagged behind assumptions in the adopted budget. The report covers July through September and draws on data showing sharp losses in the hospitality, arts and food‑service sectors.

The officials highlighted several concrete drivers: the business‑tax projection was revised down by about $99 million because payroll and gross‑receipts apportionment is sensitive to where employees physically work; the team now assumes substantially higher telecommuting (100% through September and 75% for the remainder of the year in the model). Hotel tax revenues were revised to a roughly 60% decline (measured by RevPAR), sales‑tax receipts showed a very large drop in the April–June period, and small‑business sales activity remained far below year‑ago levels.

"Businesses owe payroll tax only on employees that are physically working in the city," Rosenfield said, explaining why telecommuting materially reduces the city’s business‑tax base. Ted Egan, the city’s chief economist, said SFO enplanement figures and retail activity underscore the outsized effect of lost international travel and conventions.

The presentation identified some offsetting items: preliminary year‑end close left about $21 million available for appropriation and the recent transfer‑tax increase (Proposition I) is expected to add roughly $11 million to the general fund this year. In an illustrative scenario that applies prior‑year gains to the current shortfall, staff showed the gap could narrow to about $67 million.

City staff also outlined pandemic‑related spending. Rosenfield said the budget includes roughly $580 million in emergency programs across several departments; early month‑to‑month projections showed overages in some areas and savings in others, with the pot roughly netting near plan early in the year. He called out uncertainties that could move results materially, including FEMA reimbursement rules and the pace and duration of federal or state stimulus.

Officials singled out several departmental impacts: planning and permitting revenues have plunged, Moscone Center conventions have disappeared, recreation and parks concessions are down, and the sheriff’s office is facing an $11.5 million pressure that staff said is primarily overtime and training/backfill related to staff relocations.

Supervisor Shimon Walton and others pressed staff for a detailed accounting of the sheriff’s overtime costs; Michelle Allersman said staff would follow up with the department for further detail. Other supervisors asked whether Project Homekey grants were lowering shelter‑in‑place hotel program costs; Rosenfield said two recent state acquisition grants (for the Granada and Diva hotels) and additional state operating support that is not yet in the baseline could provide $10–15 million of unassumed relief.

The report also flagged a state‑level timing risk: a December guidance from the state controller’s office on excess ERAF calculations could swing the city’s position by tens of millions of dollars. Rosenfield said a concurrence with the counties’ approach could yield about $60 million in favorable results; an alternative alignment with the Department of Finance’s summer position could mean about $20 million of downside.

The committee’s public commenters tied the telecommute debate to local tax consequences and requested the staff presentation be posted in Legistar. Committee members and staff said they will continue monthly monitoring and plan a more complete five‑year forecast in early December followed by a midyear rebalancing proposal as needed.

Next steps: staff said another update on current‑year revenues and expenditures will be included in the six‑month report (anticipated in February) and that they will continue to provide monthly tracking of COVID‑related programs.