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Supervisor's Report

Inside San Francisco’s Budget (Part 1 of 3)

City Hall

As chair of San Francisco’s Budget and Finance Committee this year, I have welcomed the opportunity to dig deeper into our City’s fiscal condition and financial well-being. My goal as budget chair is to be as open and transparent as possible – these are your dollars with which we are making major policy decisions, and you should know how they are spent – as well as balancing our budget.

This article is the first in a three-part series intended to inform everyone how the budget process works in San Francisco, what the budget actually funds, and what priorities are ultimately reflected in this year’s budget cycle for Fiscal Year End (FYE) 2014 and 2015 (San Francisco operates on a June 30 FYE).

Part 1 focuses on the basics of our city budget.

San Francisco’s Annual Budget

This year, San Francisco has a $7.9 billion annual budget – spending billions of dollars to maintain and improve our schools, libraries, and parks, to pave our roads, and to operate our hospitals and airport, as well as provide other vital services such as police, fire, emergency medical services, and of course Muni, among many others. As a framework for understanding our overall budget, I thought it would be useful to provide a quick snapshot of our income sources and general spending categories.

Note in particular that approximately 15 percent of our income is from the federal and state governments, so when either of these levels of government cut their budgets, we feel it directly here in San Francisco. For example, last year when the governor enacted his prisoner realignment plan to save the state money, or this year when the federal government enacted its self-imposed sequester, there are true and deep ramifications at the local level here in San Francisco.

Enterprise vs. General Fund Departments

Within our budget, we have two different types of departments: enterprise departments and General Fund departments. Enterprise departments generate their own revenues by charging a fee for service, and as such generally do not receive support from the City’s General Fund. Examples of enterprise departments include the San Francisco Airport, the Port of San Francisco, the Public Utilities Commission and the San Francisco Municipal Transportation Agency (SFMTA).

This upcoming year, our enterprise department budgets will be approximately $4.1 billion out of our $7.9 billion total budget. Our General Fund, which is our pool of discretionary spending, funds all other departments, which are in turn called General Fund departments. Examples of General Fund departments including Recreation and Park, Department of Public Health, Human Services Agency, and our Department of Children, Youth, and Families. This upcoming fiscal year, it is anticipated the General Fund budget will be approximately $3.8 billion out of our $7.9 billion total budget.

Reserves, Baselines, and Set-Asides

Within our discretionary General Fund, our budget is further restricted by both state law and local initiatives passed by San Francisco voters, which require us to provide mandatory funding levels to certain departments (such as a mandatory contribution to our public school district), maintain staffing levels in certain departments (such as the Police Department), and fund several reserve accounts (including a general reserve, rainy day reserve, and a budget stabilization reserve).

Overall, our reserves, baselines, and set-asides account for $1.9 billion, which leaves the true discretionary spending within our budget at $1.9 billion. In next month’s article, we will take a deeper dive into the General Fund and highlight not only spending trends over the past five years, but also specific General Fund projections.

Two-Year Budget Cycle

In November of 2009, voters passed Proposition A, which amended the City Charter to require San Francisco to transition to a two-year budget cycle for all departments by FYE 2013.

Therefore, during last year’s budget process, for the first time all city departments submitted a two-year budget, covering FYE 2013 and 2014, and aside from certain enterprise departments, the majority of all other departments will once again be asked to submit a two-year budget (also known as a rolling two-year budget) during this year’s budget cycle. I’m a huge fan of increasing the length of our budget cycles, because it holds policy makers in City Hall accountable for taking a long-term view of our financial picture.

Budget Projections

Despite a vastly improving local economy (our unemployment rate in San Francisco has now fallen from 9.8 percent in January 2011 to 6.0 percent in April 2013), we continue to face projected annual budget deficits. Given that we are legally mandated to produce a balanced budget each year, any projected deficit must be closed through additional cuts or revenue.

For this upcoming budget season, the mayor’s budget office is projecting a $123.6 million General Fund shortfall for FYE 2014 and a $256.1 million shortfall for the following year in FYE 2015. In addition, our most recent Five-Year Financial Plan shows that we are looking at a cumulative budget shortfall of $487.2 by FYE 2018. Clearly these projections will change depending on an updated revenue picture and additional information regarding federal and state budget impacts as we get closer to finalizing the budget. However, it does provide a quick snapshot of the obstacles we currently face heading into the heart of budget season in City Hall.

City Hall Budget Calendar

During the months of March, April, and May, the mayor’s budget office works with all enterprise and General Fund departments to build individual department budgets, and ultimately a comprehensive budget for the entire city, while during the same time, the Budget and Finance Committee holds preliminary budget hearings on our largest departments. Once the mayor’s office completes the budget, our controller’s office adjusts citywide revenue and expenditure estimates and confirms that the proposed budget is balanced.

On June 1 (this year June 3), the mayor’s office will publish its proposed budget and present it to the Board of Supervisors. During June and July, I will chair our Budget and Finance Committee hearings on the proposed budget, amend the budget as appropriate, and reallocate any savings for other priorities. By law the Board of Supervisors must pass a balanced budget no later than July 31.

Budget Priorities

As the chair of our Budget and Finance Committee, I am committed to holding an inclusive, open, and transparent budget process, balancing the budget in a fiscally responsible manner, and making certain that our spending reflects the priorities of our entire city. I believe community input is a very necessary and significant part of the budget process, and I have worked with the mayor’s budget office and other supervisors to schedule six separate town hall meetings about the budget across San Francisco. Our District 2 Town Hall is scheduled for Saturday, May 18 at 10–11:30 a.m. at Galileo High School, so please attend if you would like to speak directly to the mayor or other department heads about your budget concerns.

Though San Francisco is in a much better place financially than in recent years, we cannot take anything for granted as it relates to our local economy. Further, we still have systemic budget problems that need to be addressed, such as our overtime costs, our unfunded health care liability, and monitoring of our nonprofit organizations that receive city funds. I will continue to keep my eye on the financial ball, and I look forward to presiding over a process with an aim to keep San Francisco financially sound for our current residents and for future generations.

How to Stay Involved

For up to date information on the City budget and related documents, please visit our budget website at www.sfgov.org/budget. The Budget and Finance Committee meets every Wednesday at 1 p.m. in Room 250 at City Hall, and the agendas for the meeting are posted the Thursday afternoon before the meeting – you can find the agendas at www.sfbos.org by clicking on the Budget & Finance tab. Please always feel free to call my office with any questions.

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Supervisor Mark E. Farrell is the District 2 supervisor and can be reached at 415-554-7752 or mark.farrell@sfgov.org.

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