City budget offices project $1.7 billion shortfall over two years as COVID-19 drains hotel, business taxes

City financial officers told the San Francisco Budget and Appropriations Committee on May 13 that the city now projects a $1.7 billion revenue shortfall over the two-year budget period as the COVID-19 pandemic sharply reduced hotel and business tax receipts.

City Controller Ben Rosenfield said the offices "have settled on a single number, of 1,700,000,000.0" in projected revenue losses across the two-year planning window. He said property tax has held up in the short term, but losses in business taxes and hotel taxes have driven the outlook: business taxes are down roughly $200,000,000 for the year and hotel tax revenue is facing an immediate and severe drop, with an estimated $150,000,000 weakness versus the adopted budget in a single quarter.

Kelly Kirkpatrick of the Mayor's Budget Office told the committee the mayor intends "to submit a rebalancing plan for the approximately $250,000,000 of current year shortfall, by the end of next week, to the board of supervisors." Kirkpatrick said the two-year budget gap grows because one-time fund balances used to smooth costs are not available in later years and because some savings (including a wage-delay agreement) push costs into FY2021–22.

Officials described roughly $375,000,000 of direct COVID-related departmental spending projected this fiscal year, driven by health care responses, alternative housing and emergency operations. Kirkpatrick said the administration expects to "largely spend down our CARES Act allocations, by the end of this fiscal year," and that FEMA reimbursement assumptions (modeled at 75%) and other federal and state aid will materially affect net local costs.

The presentation spelled out funding sources that help offset costs, including CARES Act allocations cited by staff at about $150,000,000, HUD allocations, and Project Room Key state funding. Under present assumptions staff estimated about $40,000,000 in remaining sources to pay costs beyond July.

Committee members pressed staff for department-level detail. Rosenfield said juvenile probation's shortfall largely reflects delays in claiming federal and state grants and that public-works revenue losses stem from suspended street-use activities and event cancellations. Kirkpatrick said departments are producing year-end savings driven in part by hiring slowdowns, and that the administration is prioritizing non-layoff options for the current rebalancing plan, including freezing capital projects and pausing programs not yet started.

The committee did not take final action on budget measures during the hearing; after public comment yielded no callers, the committee voted unanimously to continue the item to the call of the chair. The mayor's rebalancing plan and staff follow-ups on childcare reimbursement, vacancy counts and department tables were requested for further review.