A Big Win for San Francisco’s Budget—With Bigger Tests Still Ahead
San Francisco closed a $643 million deficit and passed its largest budget ever weeks ahead of schedule, but the bigger challenges are only just coming into view.
TL;DR
San Francisco closed a $643 million deficit and passed a $16.9 billion budget weeks early, banking over $1 billion in reserves and reaching a deal in record time. It’s a real win after years of chaotic budget seasons, but with next year offering less cushion, the harder tests are still to come.
For most of the past year, San Francisco was staring down a budget deficit of more than $643 million, a hole made worse when the federal government cut hundreds of millions in healthcare and food-assistance dollars the city was counting on. On July 21, the Board of Supervisors closed it.
It did so without a midnight showdown, and without shredding the safety net. The city passed a record $16.9 billion two-year budget, balanced the books, banked more than $1 billion in reserves against future federal cuts, and reached a deal weeks early. A year ago these negotiations dragged until two in the morning. This year the deal was done by dinnertime. Board President Rafael Mandelman said it was the earliest agreement he had seen in eight years.
But the budget avoided reckoning with some of its most serious structural problems—the labor and pension costs driving the city’s long-run deficit chief among them—postponing the bigger fights until next year. So here’s an honest ledger of what deserves credit, and what still lies ahead.
The Wins
The deficit got closed, on time, without a meltdown.* A $643 million hole was real money, and it is closed. Competent, low-theater governance is worth something in a city that spent years turning budget season into a spectacle that ran past midnight.
Reserves were built, not raided.* Holding back over $1 billion against future federal cuts is genuinely prudent, given how much of the shortfall traces back to Washington. City Hall chose to fortify the balance sheet rather than spend to the ceiling. In a volatile funding environment, that is the responsible call.
Layoffs were front-loaded, not used as leverage.* Rather than dangle hundreds of positions as bargaining chips through budget season, the administration acted in April, issuing 127 pink slips out of roughly 500 targeted positions. It was painful for those workers, and it should be said plainly. But it took the annual layoff drama off the table and let the budget be argued on substance.
The supervisors restored real money, with real savings.* The Board restored $28.5 million over two years to programs on the chopping block, and paid for it with actual savings, not new taxes or borrowing. The Budget and Legislative Analyst combed 258 pages of line items and caught things like an inflated city pickup-truck estimate. Chan described the discipline plainly: “not robbing Peter to pay Paul.”
The process deserves credit where it’s due. A city that felt like it was in freefall a year ago is now negotiating budgets in a timely fashion, banking reserves, and holding its framework almost entirely intact. That is a genuine achievement.
What the Budget Deferred
But strip away the press-release framing and this is a competently managed budget resting on a shakier foundation than the topline suggests. Many of the wins are wins of process and timing. On the substance that will decide whether San Francisco is solvent in three years, this budget deferred many of the hard choices.
The structural deficit was not solved. It was deferred.* Closing this year’s gap leaned on reserves and one-time maneuvers, not on reforming the cost base. Even the officials celebrating concede that city jobs are safe this year and next year is another story. The city is now spending a record $16.9 billion for a population that has been shrinking, which means per-capita spending keeps climbing. Blaming Washington is politically convenient, and the federal cuts are real, but it also lets City Hall avoid the harder conversation about a cost structure the city itself controls.
The cost driver no one at City Hall will touch.* The reason the structural fix keeps slipping is not a mystery. The single largest driver of the city’s long-run costs is public-sector compensation and pension obligations, and it is the one part of the budget that never seems to be on the table. Independent analysts warned months ago that the new police and fire contracts could put the budget in a bind, and civic groups like SPUR laid out the tradeoffs in detail. Those contracts, worth roughly $100 million over two years for police and fire alone, were locked in, not litigated. Public-sector unions are the most organized political force in the building, and they know it. A budget that trims truck orders and proposes taking cash grants from poor students before it will touch labor costs is a fair signal of whose interests tend to set the ceiling, even when advocates manage to claw a given cut back. Every cycle, City Hall finds it easier to reach for a hotline for immigrants or grants for City College students than to reopen the compensation and pension formulas that actually bend the curve. That is less a fiscal accident than a statement of political priorities, one that has shaped this city’s finances for years.
The city is money-rich and outcome-poor.* While the general fund strained over marginal add-backs, large dedicated pots sit flush. The voter-approved Prop C homelessness fund has generated enormous sums; last year the Coalition on Homelessness flagged roughly $89 million in allocated but unspent Prop C dollars the mayor proposed redirecting, and this budget cycle KQED reported the city again leaning on Prop C revenue to backfill a general-fund gap rather than dedicating it to the services voters approved it for. The budget debate fixates on small restorations while a big set-aside gets treated as a spare account to draw down. The question nobody asked on the floor: are the dollars we already have buying anything?
The “quick and painless” process is a symptom, not a triumph.* Mandelman was candid that there was “less to fight about” this year, because prior cycles cut so deeply that “the ground to fight feels like it has shrunk.” The smooth process advocates are cheering is partly the calm of a base already hollowed out. And the People’s Budget Coalition’s claim of winning back “90 percent” refers to the $28.5 million the Board could move, less than 0.2 percent of the budget. That is a small sliver of the budget framed as a sweeping victory.
And not everyone was made whole.* Workforce development and some legal aid took hits. A Lawyers’ Committee for Civil Rights program that helps small businesses avoid the mistakes that lead to closure lost its grant and expects to drop roughly 150 businesses a year. The city’s immigration rapid-response hotline lost the supplemental funding that let it staff overflow and after-hours calls; the line will stay up, but with a thinner crew behind it.
What to Watch
Follow the outcomes, not just the dollars.* The Prop C homelessness fund and the other big set-asides have collected enormous sums. The city should publish, and residents should insist on, a clear public accounting of how much is actually spent each year and what measurable result it buys. Money-rich and outcome-poor is a choice, and it is auditable. We intend to audit it.
Put the real cost driver on the table, in daylight.* Next year’s budget cannot balance on reserves and one-time savings again. The compensation and pension conversation the city keeps deferring has to happen in public, with the numbers on the record, not settled in contracts negotiated out of view. If public-sector labor costs are the ceiling on everything else, residents deserve to see that ceiling and vote on the people who set it.
Protect the residents with the least political weight.* The city found a way to restore Free City College grants once the fight got loud enough. The same standard should apply to the fights that stayed quiet: the immigration hotline’s after-hours capacity and the small businesses losing free legal aid. Whether those come back next cycle is the clearest test of whether the priorities actually get fixed or just re-announced.
We should give credit where it is due: the city closed a large deficit early, built real reserves, and refused to let the process descend into chaos. In a town that has made budget season a recurring embarrassment, that is not nothing. But the recovery earned San Francisco something bigger than a quiet news cycle. It earned the room to have the hard conversation from a position of strength instead of crisis. The job now is to make City Hall actually have it, in public, before the reserves run out. That is the story worth watching, and the one we intend to keep pushing.
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