City officials present less-than-rosy budget outlook 

Although a stronger economy is expected to generate exponential increases in tax revenue, The City is projected to face a budget shortfall of more than $85 million by the middle of 2009.

The sobering budget projection was provided by The City’s top accounting officials — the controller, the mayor’s budget director and the budget analyst for the Board of Supervisors. Every year, the officials must present a three-year budget projection as a result of a law passed by voters in 1994.

San Francisco has an annual budget of $5.7 billion, which includes funding for 27,162 public employees. Approximately half of the budget — $2.9 billion — is dedicated to personnel costs. The City is now setting its budget for the 2007-08 fiscal year, which begins in July.

According to the three-year budget projection, The City will face a budget shortfall of $25.4 million next year, and an $85.3 million deficit in fiscal year 2008-09.

The budget projections are based on an assumption that upcoming contract negotiations with The City’s police, firefighters and nurses unions will result in a wage increase that only grows with the rate of inflation. Every additional 1 percent increase equals $6.1 million per year to The City’s general fund, according to the report.

"The biggest issue before us is the labor contracts … they can be very expensive," said Ken Bruce, a senior manager in the Budget Analyst’s Office. "To the extent that these labor agreements increase, the shortfall will also increase."

San Francisco’s revenue comes from a variety of sources, with the largest percentage — nearly 31 percent — coming from charges for city services, such as building permits and parking. The next largest source of funding — 19 percent — comes from property taxes, and another 9 percent comes from other local taxes.

The reason the 2007-08 budget picture is not as grim as in the fiscal year that follows is because there is an assumed balance of $126.6 million left over from this year’s budget. The extra dollars result from higher revenues than projected — particularly from property and other local taxes — and cost savings measures.

The budget outlook for 2009-2010 is improved — with an expected $8.3 million surplus — but that’s based onan assumption that the mayor and the Board of Supervisors will make "structural corrections, as opposed to one-time corrections" to deal with the 2008-09 deficit, Bruce said.

State law requires all cities to adopt a balanced budget each year, so San Francisco’s projected shortfalls mean that The City will either have to increase revenues or look for ways to cut costs.

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