San Francisco Faces Budget Gap as $6 Billion Can’t Meet Costs

(Bloomberg) -- San Francisco is projecting a $420 million budget gap over the next two fiscal years as expenses such as pension contributions are rising faster than the growth in revenue for the technology hub.

Mayor London Breed asked city departments Monday to reduce their costs as part of the budget process for the city, which has a $6 billion general fund. The budgets for the years beginning in July 2020 and July 2021 must be balanced by June when submitted to the city’s board of supervisors.

Still, the mayor said she wants to prioritize helping the thousands of people living on the streets. Ballooning income inequality has sent the city’s homeless population skyrocketing 17% over the last two years. “Poor street conditions” was a reason among others cited by software giant Oracle Corp. to move its annual convention from the city to Las Vegas, CNBC reported last week.

“We have a homelessness, mental health, and substance use crisis on our streets, and we all need to focus on funding services so that we can get people off the streets and into the care they desperately need,” Breed said in a statement Tuesday.

San Francisco’s predicament shows that even AAA-rated cities aren’t immune from the problem hitting communities large and small across the U.S.: revenue growth can’t keep up with escalating costs.

City officials expect next year’s tax collections will grow by 2.4%, a drop from the 4.5% increase this year. Meanwhile, the cost of health benefits is rising about 6% annually. Pension payments next year total $470 million, a 55% increase from five years ago, a result of factors such as investments falling short of goals and a reduction in the investment earnings target that required higher contributions to compensate.

Breed said she will continue to push for a mental health system program to serve the 4,000 people who are homeless and suffer from both mental health and substance abuse issues. She has said she would like to present a bond measure to voters in November to help pay for it, and an overhaul of the city’s business tax structure could also become a funding source.

To contact the reporter on this story: Romy Varghese in San Francisco at rvarghese8@bloomberg.net

To contact the editors responsible for this story: Elizabeth Campbell at ecampbell14@bloomberg.net, Michael B. Marois, Allan Lopez

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