Supervisors hear warning on rising pension costs, stalled revenue growth and federal risks to San Francisco's budget

City budget officials on the Board of Supervisors' Budget and Finance Committee said San Francisco faces a widening gap between revenues and obligations over the coming five years driven by personnel costs, slower revenue growth and uncertain state and federal aid.

"I do feel a lot more uncertainty and just nervousness about our revenues and what might come from the federal government," Melissa White house, the mayor's budget director, told the committee. She and Controller Ben Rosenfield presented updated projections and described a budget picture that has shifted since the fall.

Why it matters: the mayor's office's fall plan projected roughly $560 million in revenue growth over the five-year period while expenditures would rise by about $1.4 billion if current policies and baselines continued, creating a structural challenge that departments and elected leaders must address ahead of the mayor's June 1 budget submittal.

What officials said: White house said the two-year shortfall estimate fell from roughly $400 million in the fall to about $350 million after the Controller's six-month update, but stressed that the numbers remain large and the outlook is volatile. The mayor's office has received department submissions and asked departments to propose targets (3% in year one, 16% in year two) and to hold FTE counts steady; many complied while some requests will be stripped from submissions.

Rosenfield said the primary drivers of projected expenditure growth are salaries and benefits (about $700 million of the five-year rise, roughly half of the $1.4 billion), health benefits (growing faster than inflation) and pension costs. On pensions he warned of a reversal in earlier favorable trends: "that's almost the equivalent of giving all city workers a 9% raise," he said, summarizing the roughly $170 million variance in the forecast attributable to longer retiree lifespans, a court decision affecting supplemental COLAs and lower-than-assumed investment returns.

Officials also highlighted diverging revenue streams. Property-related receipts and transfer taxes have been strong this year, buoyed by high-end commercial transactions and frequent reassessments, while hotel tax receipts have softened as convention business fell because of Moscone Center renovations. Rosenfield estimated hotel tax revenue near $500 million and said short-term-rental-related hotel tax receipts are currently a comparatively small portion of that total (roughly $20—20,000,000—20$30,000,000).

State and federal risks: Rosenfield warned that about one in five general-fund dollars originates from state or federal sources and flagged a proposed state budget change that could shift roughly $50 million in costs to San Francisco. At the federal level he described broad uncertainty, including Administration comments on sanctuary cities and proposals to alter the Affordable Care Act, and said the city is tracking potential impacts to grants and health funding.

Litigation update: Deputy City Attorney John Givner told the committee the city filed a motion for a preliminary injunction in the U.S. District Court for the Northern District of California "asking the court to... issue an order enjoining the... application of the... executive order to the city." The motion is pending.

What happens next: the Controller and mayor's budget director said they will update the five-year financial plan with revised projections in March, issue a nine-month spending report in early May, and the mayor must submit a proposed budget to the Board of Supervisors by June 1 under the administrative code.

Adjournment: After follow-up questions about pension-return assumptions, inflation effects and the timing of Moscone Center reopening, Supervisor Tang made a motion to adjourn; it was seconded and the committee adjourned.