San Francisco’s Budgetary Confusion

by Randy Shaw on February 27, 2006

This week ushers in San Francisco’s own version of “March Madness,” the annual budget ritual that decides how the city’s money is spent. Due to unexpectedly high property tax revenue, San Francisco has its first budget surplus in four years. The Controller now projects a $132 million surplus for the current budget year, and the prior estimate of an $80 million budget shortfall for 2006-07 has been reduced to $30 million. This appears to mean that San Francisco has about $102 million in new money available to spend, which could be great news for city workers, nonprofit programs, and for those concerned about the city’s parks, transit system and infrastructure. But there is some fine print around this $102 million, and by the end of this week, politicians will have decided how to allocate most of it.

After four difficult budget years that saw city workers wages frozen and MUNI service reduced, the Controller’s budget numbers recently revealed that 2006-07 could be a different story. But just how different is unclear, as San Francisco has so many unofficial rules and legal restrictions regarding how it spends money that even a $102 million surplus can be described as leaving the city unable to meet its needs.

Here’s the problem. Much of the city’s budget is tied up by voter-approved funding mandates, such as those enacted for children’s services, full police staffing, the Fire Department, the “rainy day” fund, and for city schools. We also have mandatory spending for various health and social welfare services.

After we deduct all of the mandated expenditures, a dispute emerges around the city’s capacity to fund programs when an unusual set of economic conditions generate money that cannot be counted upon in future years.

Recall how former California Governor Gray Davis was criticized for using dot-com boom money to boost affordable housing, expand health care, and improve schools. When the state’s economy slowed, and California was hit by skyrocketing energy costs, Republicans, the media, and much of the general public blamed Davis for spending at unsustainable levels during the boom.

But Davis was right to approve this spending, which progressive advocacy groups strongly backed. If social needs are not addressed during the good times, they never get addressed.

But others, particularly those who work for controllers and budget offices, see it differently. They seek to avoid wide variations in spending levels, and prefer that extra money coming during boom years be spent on capital projects, rather than ongoing obligations such as new programs or higher wages.

Mayor Newsom has followed this latter approach by recommending that $25 million, a fourth of the entire surplus, be directed toward a study of the costs of rebuilding SF General. Members of SEIU Locals 790 and 250 primarily staff SF General, muting opposition the Mayor might otherwise have heard from city unions for preemptively allocating 25% of the budget surplus away from salary increases.

If the Board of Supervisors approves this $25 million expenditure, the potential surplus will be reduced to $77 million. But the Mayor also has plans for this money, having recently announced a $16.5 million anti-violence program. This is $6.5 million more annually than the allocation in Supervisor Daly’s proposed Homicide Prevention Charter Amendment, and unlike Daly’s measure, the Mayor’s spending plan has no sunset clause.

If Newsom gets his way, this will leave the surplus at $60 million before the city’s budget process even begins. And this amount does not include money that the Mayor has pledged to spend as part of his effort to keep families in San Francisco, nor does it include funding for the city’s contribution to the Newsom health care proposal.

Moreover, the Board of Supervisors is not going to sit back and watch the Mayor allocate the city’s entire budget surplus. There will be a proposal this week to direct surplus funds for capital projects in parks and recreation areas, and there is growing support for reversing the Muni service cuts imposed last year in response to the then-budget deficit.

(An unwritten budget rule in San Francisco is that once a program or service is cut or eliminated, it is not restored the following year regardless of available funds. The view is that having overcome the wrath of the public, city officials should not have to revisit the fight.)

To make our once rosy budget picture even more uncertain, the Bush Administration has cut the Community Development Block Grant Program by 9%, and cut payments to many foster care providers by 30%. Victims of these cuts will be asking the Board of Supervisors to make up the difference, and given the city’s problems with foster care, expect these pleas to get results.

San Francisco’s once impressive $102 million budget surplus will have greatly shrunk even before Memorandums of Understanding are reached with the city’s labor unions. City workers received no salary increases the past two years, and two budgets ago had to forego the city’s 7.5% contribution to their pension plans.

Given the $102 million that once existed, city workers are guaranteed at least the 2% cola’s that nonprofit city contractors received last year. Once the labor deals are struck, the city’s budget surplus will be gone.

The fight over San Francisco’s 2006-07 will continue through July, but the major decisions will be made in March, and likely this week. Many believe that the city has lacked the money to adequately meet its needs since downtown corporations stopped paying $30 million in annual business taxes in 2001; this has already cost San Francisco nearly $150 million.

That’s why support is building for a revenue-raising measure on the November 2006 ballot to retrieve these lost corporate funds. Opponents will argue that the city’s $100 million budget surplus shows that there is plenty of money available, but as soon will be shown, $100 million does not go far in San Francisco.

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