S.F.’s budget deficit is even worse than expected. Here’s why more cuts are on the way

Controller Ben Rosenfield, whose office released the report, told the Chronicle Friday that the projection should be treated as a call to action.  

“The sooner the city takes steps to bring spending in line with revenue, the fewer hard choices are going to have to be made over the long run,” he said. 

The deficit poses a challenge for city leaders as they seek to address a host of complex problems amid resident complaints, including a hollowed-out downtown and worries about crime, a housing crisis and street conditions. 

Mayor London Breed will introduce her two-year budget by June 1. Supervisors must approve it in time for her to sign it on August 1. 

To balance the budget, Breed told her department heads in a memo Thursday to propose at least another 5% budget cuts in each of the next two years on top of the 5% budget cuts in the first budget year and 8% in the second year that she already ordered in December. Those proposed cuts are due at the end of next week.

“These numbers underscore the very real challenge facing us with this upcoming budget,” the mayor’s office said in an emailed statement Friday. “This year will require tough choices of a magnitude that we haven’t had to face in many years. Even with that being said, the Mayor has made it clear that we will continue to prioritize our city’s top priorities around ensuring clean and safe streets, supporting our economic recovery, and addressing homelessness, mental illness and addiction.”

The numbers for the second year of the budget have improved, but it means the deficit has still grown over two years to $780 million — $52 million more than the last forecast. In five years, the gap will grow to $1.3 billion, approximately $96 million more than expected.   

Rosenfield attributed the worsening numbers to a few main reasons. 

First, the supervisors just approved spending an unexpected $50 million during the middle of the fiscal year. Breed requested the board approve spending $25 million on police overtime, while Board President Aaron Peskin proposed $25 million for street cleaning. 

The city also suffered weakness in some revenues, including transfer tax paid on large properties driven primarily by rising office vacancy rates downtown that has lowered the demand for buying and selling of office buildings. That’s despite the fact that some revenues, such as local hotel tax and property tax, did better than expected.