San Francisco officials warn of rising deficits, outline 5‑year plan and department targets

The mayor’s budget director and the city controller told the San Francisco Board of Supervisors’ Budget & Finance Committee that the city faces a roughly $400 million shortfall across the next two charter‑mandated balanced years and growing five‑year deficits driven largely by rising employee costs.

“Our deficits have popped back up again,” Melissa Whitehouse, the mayor’s budget director, said during the committee’s final 2016 meeting, noting that the office now projects about a $400,000,000 deficit for the upcoming two‑year window. Whitehouse and Controller Ben Rosenfield said slower revenue growth and higher personnel costs — including CPI assumptions and health and pension cost increases — are the principal drivers of the gap.

Why it matters: the combined five‑year plan presented by the mayor’s office, the controller’s budget team and the Board’s analyst shows $560 million of projected additional revenue by year five versus $1.4 billion of projected expenditure growth. Whitehouse said roughly half of that expenditure growth is salaries and benefits; the CPI and rising health benefit assumptions account for much of the projected increase. Rosenfield said changes to pension actuarial assumptions (updated mortality tables), a court ruling that affected aspects of Proposition C supplemental COLAs and two years of investment returns below actuarial assumptions have increased projected employer pension contributions.

To address the gap, the mayor directed a post‑election rebalancing and issued budget instructions to departments that include a 3% reduction target in each of the next two years and a firm instruction not to add full‑time equivalents when submitting budgets. “The mayor’s instructions are not to cut. They’re not to do layoffs,” Whitehouse said, adding that the direction is to grow at a “pace we can afford” and to reallocate within existing budgets for any new programs.

Officials emphasized uncertainty tied to federal policy changes and the broader economy. The controller’s recession scenario — modeled on prior local downturns — showed roughly $960 million in foregone revenue over the modeled period and additional pension cost pressures of about $75 million ongoing in an adverse scenario. Rosenfield said the city is not baking in federal policy changes (including potential Affordable Care Act changes) because there is insufficient information to model them.

What happens next: the mayor’s office will include fiscal strategies in the published five‑year financial plan and departments must return proposals showing how they will meet targets through revenue, efficiency or reallocation. Whitehouse said the plan and detailed revenue streams would be publicly released and that the mayor will bring forward options as negotiations with labor begin next year.