San Francisco’s budget outlook is brighter than it’s been in months, but the city still has a projected $644 million two-year deficit to contend with this spring.
The city has outspent its annual tax revenue in the years since the pandemic, creating a recurring budget gap that’s prompted recent cuts to city jobs and services. A city report released Tuesday estimated that the city’s projected two-year shortfall had dropped by about $234 million since last month.
The city controller credited the improvement to a decrease in city spending on retirement funds and increased revenue from city hospitals, as well as growing revenue from hotel, sales and transfer taxes. Mayor Daniel Lurie celebrated that progress, but warned that San Francisco was “not out of the woods” yet.
“We must continue working hard to get our fiscal house in order,” Lurie said. “If we don’t act now, we will have to do twice as much in the coming years, with the choices becoming more difficult, more expensive and more painful.”
Difficult choices are already on the horizon as the city prepares to negotiate its budget before the summer deadline. In December, Lurie announced a plan to cut $400 million from the city’s general fund in response to what was then a $936 million projected two-year deficit.
Lurie asked departments to identify their core programs, preparing to eliminate others deemed discretionary. Layoffs are also looming, with at least 500 positions up for elimination as the city aims to shave off $100 million in spending on salaries and benefits.
The city controller said “significant” steps would be necessary to account for a deficit that remained “large by historical standards.” The city’s gloomy financial picture has been further strained by federal funding cuts for food stamps and Medicaid, which could cost San Francisco roughly $300 million over two years.
Other external factors could skew the projection further, the controller said. Tuesday’s report pointed specifically to the current uncertainty around tariffs, deportations and H-1B visa limitations, as well as the risk of a “prolonged oil shock from the US/Israel-Iran War.”
Lurie nodded to these uncertainties in his statement Tuesday. But on the local level, he extolled the steps his administration has taken to “create the conditions for San Francisco’s recovery,” citing recent efforts to revitalize downtown businesses and higher-than-projected tax revenues.
“My job as mayor is to set up our city for success, not just today but for years to come,” Lurie said Tuesday. “We will deliver a fiscally sound budget that prioritizes core services, delivers results for San Franciscans, and ensures a broad and durable economic recovery.”