Proposed Five-Year Financial Plan

CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA

Proposed Five-Year

Financial Plan

Fiscal Years 2023-24 through 2027-28

JANUARY 13, 2023

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Acknowledgements

Department

Staff

Mayor’s Budget Office

Anna Duning, Sally Ma, Radhika Mehlotra, Damon Daniels, Jack English,

Xang Hang, Matthew Puckett, Fisher Zhu

Controller’s Office

Ben Rosenfield, Ted Egan, Todd Rydstrom

Controller’s Office:

Budget and Analysis

Michelle Allersma, Mark Chen, Yuri Hardin, Ken Hinton, Sylvia Ho, Nicholas

Leo, Carol Lu, Michael Mitton, Calvin Quock, Risa Sandler, Jamie Whitaker

Board of Supervisors’ Budget and

Legislative Analyst

Severin Campbell, Dan Goncher, Christina Malamut

Office of Resilience and Capital

Planning

Brian Strong, Kate Faust, Nishad Joshi, Olivia Chen

Committee on Information

Technology

Jillian Johnson, Julia Chrusciel, Neil Dandavati, Danny Vang

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TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................................................................................................... 5

ECONOMIC OVERVIEW............................................................................................................................... 8

FIVE-YEAR BASE CASE PROJECTION ......................................................................................................... 20

FISCAL STRATEGIES ................................................................................................................................... 56

CITYWIDE STRATEGIC INITIATIVES ........................................................................................................... 65

APPENDICES .............................................................................................................................................. 83

OTHER LONG-RANGE FINANCIAL PLANNING ................................................................................... 84

MAJOR DEPARTMENT ISSUES & GOALS ............................................................................................ 89

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PURPOSE OF THE PLAN

The Five-Year Financial Plan is required under Proposition A, a charter amendment approved by voters in

November 2009. The City Charter requires the plan to forecast expenditures and revenues during the five-year

period, propose actions to balance revenues and expenditures during each year of the plan, and discuss

strategic goals and corresponding resources for City departments.

ECONOMIC OVERVIEW

Presented in this report is an overview of the economic context which informs the revenue projections in the

Five-Year Plan.

FIVE-YEAR OUTLOOK

Over the next five years, the plan projects the City will experience a slow-growth revenue outlook, due to

anticipated structural changes in San Francisco’s economy, and a loss in one-time sources in the first three years

of the plan. The Five-Year Financial Plan shows that the cost of City services significantly outpaces revenue

growth during the five-year period. If the City does not take corrective action, the gap between revenues and

expenditures will reach approximately $1,224.1 million by Fiscal Year (FY) 2027-28.

Table 1: Base Case - Summary of General Fund-Supported Projected Budgetary Surplus / (Shortfall)

($ Millions)

Total expenditures are projected to grow by approximately $1,430.4 million over the next five years, which

represents an increase of 21.1% from FY 2022-23. During the five years of the plan, baselines grow by $209.9

million (15% of total expenditure growth), employee salary, pension, and fringe benefit costs grow by $490.7

million (34% of total expenditure growth), citywide operating costs grow by $514.9 million (36% of total

expenditure growth), and departmental costs grow by $214.9 million (15% of total expenditure growth).

City and County of San Francisco

FIVE-YEAR FINANCIAL PLAN

Executive Summary

Page 6 of 106

In contrast to expenditure growth, available General Fund sources are projected to increase by $206.2 million

over the same period, an overall growth of 3% from FY 2022-23.

As required by the Charter, the City will need to implement strategies to close the gap between sources and

uses over the five-year time period.

FISCAL STRATEGIES

The City projects budget deficits over the next five years if proactive steps are not taken to address the

imbalance between revenues and expenditures. Unlike the major budget shortfalls that followed the 2001 and

2008 recessions, the current projection reflects longer-term structural challenges, even absent another

recession. Given this economic reality and the major risks that could deepen the projected deficits, the fiscal

strategies discussed in this report propose implementing ongoing budget solutions while limiting the use of one-

time sources to close remaining gaps.

This approach aims to ensure the City is able to maintain services and respond to future economic challenges,

and acknowledges the need for planning for longer-term and more complex budget solutions in the coming

years. Detailed projections regarding the Base Case and fiscal strategies are included starting on page 20 of this

report.

CITYWIDE STRATEGIC INITIATIVES SECTION

The plan also includes an update to the Citywide Strategic Initiatives section. This section describes the long-

term strategy for City investments, under Mayor London N. Breed’s leadership, to achieve an equitable and

vibrant economic recovery through focusing on key areas: recovery that prioritizes Downtown and the

surrounding area, as well as neighborhood business corridors and small businesses; public safety and improved

street conditions for all communities to feel safe and welcomed in their neighborhoods; decreasing

homelessness through housing and shelter; building housing to make San Francisco more affordable; Improving

and building on systems of care that focus on the growing mental and behavioral health needs of the City; and

investing in the future of San Francisco.

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PROSPECTS FOR THE POST-COVID-19 SAN FRANCISCO ECONOMY

The nature, size, and direction of changes to the national economy wrought over the course of the pandemic

has no parallel. The COVID-19 pandemic shutdown ended the longest economic expansion in U.S. history and

caused the sharpest economic decline since the Great Depression. It was, however, also the shortest recession

in history. By the summer of 2020, the economy had started growing rapidly again. Supported by extremely

accommodative and pro-growth monetary and fiscal policy, the next two years saw an economic boom that led

to record-low unemployment rates, alongside the highest inflation in 40 years. As of December 2022, with

interest rates having rapidly risen in the second half of the year, the U.S. economy is preparing to turn yet

again—perhaps to a so-called “soft landing,” or perhaps to another recession.

In San Francisco, the economy is less diverse than it once was, rising interest rates spell trouble for two key

industries: tech and real estate. Tech start-ups flourished during the extremely low interest rate environment of

the 2010s, as investment flowed into risky areas. Higher rates have already caused venture capital investment to

sharply drop, and the stock prices of large tech companies suffered severe drops in 2022. Both are signs of an

impending slowdown in hiring. Construction and real estate both thrived when property prices were high, but a

combination of reduced demand and higher interest rates have weakened the local housing and commercial real

estate markets.

Cyclical issues aside, the pandemic appears to have brought about fewer permanent structural changes to the

U.S. economy than many feared in 2020. Entertainment, recreation, and travel industries have bounced back

rapidly with the end of COVID-19 restrictions, as people have been eager to socialize and have in-person

experiences again. Restaurants are struggling more with labor shortages than a lack of customers, and are not

being replaced by delivery services, as some predicted. Robots and automation have not eliminated routine jobs

in other industries either, like manufacturing, distribution, or accommodation. And while brick-and-mortar retail

lost ground during the pandemic to internet-based retailers, it has made a comeback; foot traffic in stores and

malls around the country is nearly back to pre-pandemic levels.

However, some structural changes adopted during the pandemic are persisting, namely, the high level of remote

work, which has significant economic implications for San Francisco. Office attendance in large metropolitan

areas is only 45% - 65% of pre-pandemic levels. The San Francisco area is trailing most other metro areas in

office attendance, and office industries produce approximately three-quarters of the City’s GDP. Remote work is

one of the major reasons why San Francisco’s economy has been slower to recover than other cities.

Over the next five years, the City’s financial planning will need to consider both cyclical and structural economic

risks. This section reviews the data of San Francisco’s economic recovery from the pandemic and considers how

the re-emergence of inflation and rising interest rates could affect the City during this five-year forecast period.

To begin with, the city’s employment recovery from COVID-19 has been relatively slow, though by the end of

2022, nearly all local jobs that were lost have been regained. Figure 1 below shows total employment in the San

Francisco Metro Division, which includes San Mateo and San Francisco counties, compared to the state and

nation, indexed to November 2019.

City and County of San Francisco

FIVE-YEAR FINANCIAL PLAN

Economic Overview

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Figure 1

For most sectors of the local economy, the pandemic period was worse than the aggregate numbers imply. In

the three-year period from November 2019 to November 2022, twelve of sixteen industry sectors in the San

Francisco metro division showed declining employment

. The decline was led by the leisure and hospitality

sector which, despite some recovery throughout 2022, still employed 30,000 fewer people than in November

2019.

Growth was concentrated in the Professional, Scientific, and Technical Services sector, and the Information

sector, which together added 51,300 jobs during the period. Most technology companies in San Francisco are

classified in these two sectors. Both 2020 and 2021 were record years for venture capital investment in the Bay

Area, and despite a slowdown and some notable layoffs at the end of 2022, the sector overall has experienced

very strong growth in the past three years.

The San Francisco Metro Division includes San Francisco and San Mateo counties. San Francisco makes up approximately

63% of employment in the metro division.

100

105

Nov-19

Jan-20

Mar-20

May-20

Jul-20

Sep-20

Nov-20

Jan-21

Mar-21

May-21

Jul-21

Sep-21

Nov-21

Jan-22

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May-22

Jul-22

Sep-22

Nov-22

Monthly Total Employment November 2019-November 2022

(November 2019=100)

San Francisco Metro Division

California

U.S.

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Figure 2

These sectoral employment trends, with tech growing faster than other industries, represents a continuation of,

and not a break with, pre-pandemic economic trends in the city. In 2007, just before the Great Recession, the

information technology sector accounted for 4.0% of all private sector employment in San Francisco

. By 2019,

just before the pandemic, 15.5% of all private sector jobs in the city were tech jobs, and this number rose again,

to 18.7%, by 2021.

Despite the growth in employment in tech and other office-using industries, physical attendance in commercial

offices in San Francisco is far below levels seen before the pandemic. This is part of a national trend, made

necessary by public health controls early in the pandemic that limited in-person work by non-essential workers.

The remote work trend is the practice of employees doing their jobs from a location other than the central office

operated by their employer. Across the country, however, office attendance has been slow to recover even after

public health controls were no longer necessary.

San Francisco has led this trend. According to office attendance data published by Kastle Systems, metro San

Francisco’s office attendance was only 42% of pre-pandemic levels in mid-December 2022. This is lower than

most other comparable metro areas, although no area was above 65% of normal.

Data comes from the Bureau of Labor Statistics, Quarterly Census of Employment and Wages, “Information technology”

refers to NAICS codes 5112, 518, 51913, and 5415.

-40,000

-30,000

-20,000

-10,000

10,000

20,000

30,000

40,000

Leisure & Hospitality

Retail Trade

Administrative & Support & Waste Services

Management of Companies & Enterprises

Real Estate & Rental & Leasing

Manufacturing

Transportation, Warehousing & Utilities

Wholesale Trade

Other Services

Educational Services

Construction

Government

Finance & Insurance

Health Care & Social Assistance

Information

Professional, Scientific & Technical Services

Change in Employment by Industry Sector,

San Francisco Metro Division, November 2019-November 2022

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Figure 3

The fact that office attendance is less than half of normal, despite considerable employment growth in office-

using industries, is clear evidence that patterns of remote work have persisted after the pandemic and are

leading to reductions in office demand. San Francisco’s office vacancy rate reached 24% in the third quarter of

2022, up from less than 5% below the pandemic

This is also a national trend: office vacancies have risen in every major market, during a two-year period of

strong economic growth. But again, San Francisco is leading this trend, as no office market has seen a larger

increase in vacancy than San Francisco. To some extent, this is due to the importance of the tech industry in the

San Francisco office market, as tech has embraced remote work more than other office industries.

However, a comparison with the San Jose office market is instructive. Like San Francisco, the South Bay’s office

market is dominated by tenants in the tech industry; like San Francisco, its office attendance numbers have been

among the lowest in the country. But according to JLL, the office vacancy rate is much lower, indicating a greater

willingness among office tenants to hold on to office space for the future.

According to data in JLL’s report Pulse of the Market: San Francisco, 2022.

10%

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70%

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Weekly Office Attendance Rate Vs. February 2020

Weekly Office Attendance in San Francisco and Other Selected Metros,

Through December 14, 2022

San Francisco

Austin

Los Angeles

San Jose

New York

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The trend towards remote work, and high office vacancy, has also weakened the economic linkages between the

tech and other office-using industries that largely drive the city’s economy, and the supporting industries that

have grown up to support them. This can clearly be seen in sales tax trends in the map below, which shows the

three-year change in taxable sales by zip code, after adjusting for inflation.

By the middle of 2022, only two zip codes in the City have recovered to the real taxable sales level of mid-2019,

making San Francisco the slowest-recovering county in California in terms of taxable sales, according to the sales

tax consultant HDL. The contraction is greatest in zip codes in the downtown core, where the loss of office

commuters and other customers is most acutely felt.

Figure 4

A decline in office attendance is not the only factor behind the slow recovery in sales tax. San Francisco’s

tourism industry – also concentrated downtown - was also badly hit by the pandemic and has lagged other cities

in recovery. While competing tourism centers are at or above their 2019 hotel revenue levels, San Francisco’s

October revenue per available room (RevPAR) was only about 70% of October 2019 levels. Tourism in the City

was adversely affected by the loss of international tourists, particularly from China, as well as the postponement

of business conventions during the pandemic. While leisure tourism has recovered strongly in the first part of

2022, business and convention travel recovery has been much more modest.

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Figure 5

Aside from office workers and hotel guests, downtown and the city as a whole have also experienced a dramatic

loss in resident population since the start of the pandemic. According to Census data, San Francisco’s population

loss between July 2020 and July 2021 was the steepest of any city above 50,000 in population

, at 6.3%.

San Francisco’s population loss has been associated with softness in the city’s housing market. As the chart

below illustrates, both apartment rents and owner-occupied housing prices in San Francisco have widely

diverged from the U.S. average since the beginning of 2020. By November 2022, apartment asking rents in the

city were down more than 10% in the nearly 3 years since January 2020, compared to a more than 20% growth

nationally. For owner-occupied housing prices, the gap was even wider: a 43% growth for U.S. housing,

compared to only a 3% growth for San Francisco housing. As mortgage interest rates began to rise quickly during

2022, prices have begun to level off nationally by the middle of the year. In San Francisco, however, they had

already dropped 9% in the 6 months from May to November.

Census Bureau, “Annual Estimates of the Resident Population for Incorporated Places of 50,000 or More, Ranked by July 1,

2021 Population: April 1, 2020 to July 1, 2021”

20%

40%

60%

80%

100%

120%

140%

Hotel Revenue as a % of the Same Month in 2019

Monthly Hotel Revenue Available per Room Night vs. 2019:

San Francisco and Selected Cities, Jan. 2020 - Oct. 2022

San Diego

Los Angeles

Seattle

New York

San Francisco/San Mateo

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Figure 6

This loss of population is clearly a contributing factor to declining taxable sales across the city, and the weakness

of its housing market, but it also constrains the ability of the city’s labor force to expand to meet the needs of

the office workers and tourists that have returned. Census data indicates the changing nature of the San

Francisco resident labor force. The table below shows the change in the number of residents of San Francisco,

and the five-county San Francisco metro area

, by occupation between 2019 and 2021.

Within the city, there was a small (1%) increase in the number of residents working in social services, education,

or legal services during this time period, however, the number of residents working in all other occupational

groups declined. In the metro area as a whole, which has also experienced an overall population drop since

2019, declines were also widespread, but generally smaller than in San Francisco proper.

San Francisco, Alameda, Contra Costa, San Mateo, and Marin counties.

100

110

120

130

140

150

Trends in Median Asking Rents and Typical Home Values in San Francisco and the U.S.

(January 2020 = 100)

SF Apartments

US Apartments

SF Housing Values

US Housing Values

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Figure 7

While there has been considerable concern that the prevalence of remote work in the technology sector would

lead to a loss of San Francisco’s talent pool in that industry, the evidence for that happening is rather weak. San

Francisco did lose 8% of its residents in computer, engineering, and science occupations, but the metro area lost

negligible amounts. Since residents in the metro area can still work in San Francisco offices as the need arises,

local tech companies have generally the same talent pool that was available to them before the pandemic.

By contrast, the city suffered severe population losses in occupations like food preparation and serving, personal

care and service, sales, building and maintenance, protective services, arts and design, production and

transportation, and construction. In these fields, two-year population declines ranged from 15% to over 50% of

the resident population in the city in 2019.

Given that San Francisco remains one of the most expensive cities in the country, notwithstanding the recent

decline in housing prices, the loss of so many low- and middle-income workers could lead to longer-term,

structural labor supply challenges for the local industries that rely on them. These include activities that are vital

to the city’s attractiveness to visitors and its quality of life, such as restaurants, art and entertainment venues,

neighborhood services, retail trade, and home renovation.

Some signs of a labor shortage can be seen in local wage growth data. In a reversal of long-standing trends,

beginning in 2021, wage growth in the restaurant industry began to out-pace wage growth across all industries

-60% -50% -40% -30% -20% -10% 0% 10%

Management, business, financial

Computer, engineering, science

Social service, legal, educational

Arts, design, entertainment, sports, media

Healthcare practitioners

Healthcare support

Protective service

Food preparation and serving

Building and maintenance

Personal care and service

Sales and related

Office and administrative support

Construction

Production, transportation, material moving

Percent Change in Population by Occupation, 2019-2021:

City of San Francisco and the San Francisco MSA

San Francisco San Francisco MSA

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in San Francisco. While the 2021 second quarter data is likely an anomaly due to wage interruptions at the

beginning of the pandemic, annual wage growth in the second and third quarters of 2021 exceeded 20%.

Figure 8

Though this is good news for the food service and preparation workers who remained in San Francisco while

restaurants re-opened in 2021, this level of wage growth is likely not sustainable for the restaurant industry over

the long term. Higher wages can create an incentive for workers to move back to the San Francisco area. But

even a 10% drop in apartment asking rents, and a short-term boost in wages, may not be enough to provide a

large number of housing options for newly arriving workers for the restaurant industry and other lower-wage

industries. For this reason, alongside the remote-work phenomenon, labor shortage in low-wage industries has

the potential to remain a structural impediment to economic growth in the city for the next several years.

The structural changes in the city’s economy initiated by the pandemic mostly occurred during a favorable

macroeconomic environment for growth. The mandated shutdowns and stay-at-home orders of the pandemic

were faded within a year, and both the Federal Government and the Federal Reserve system provided

unprecedented levels of financial support and liquidity for the financial system.

Federal expenditures had spiked from an annual rate of $4.9 trillion in the first quarter of 2020 to $8.9 trillion in

the second, and again to $8.2 trillion in the first quarter of 2021.

-40%

-30%

-20%

-10%

10%

20%

30%

40%

50%

60%

70%

2018-1 2018-3 2019-1 2019-3 2020-1 2020-3 2021-1 2021-3

Year-Over-Year Change in Quarterly Average Wages for Stable Employees in San

Francisco: Restaurant Industries and All Industries, 2018-2021

Restaurants

All Industries

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The Federal Reserve had expanded its balance sheet from $4 trillion at the start of the pandemic to close to $9

trillion by March 2022. This has had the effect of lowering short-term interest rates to near zero, and long-term

rates to record lows.

In the wake of these historically-accommodative policy conditions, growth soared. U.S. real GDP grew by 5.7% in

2021, the fastest rate since 1984. Unemployment, which had risen to 14.7% in April 2020, had dropped back to

3.5% by mid-2022, essentially the same rate as held before the pandemic.

However, inflation rose as well, and this prompted a change of course by the Federal Reserve. Inflation had not

exceeded 3% since 2011 but had risen to 8.6% by March of 2022. In that month, the Fed stopped its quantitative

easing program and began to raise the federal funds rate above zero. By the end of 2022, the federal funds rate

was approximately 4.25%, the highest it had been since before the Great Recession.

Fiscal policy changed significantly during 2022 as well. By the end of 2021, Federal expenditures had dropped

back to $6 trillion annualized, and remained at that rate throughout 2022. This effectively removed $2-3 trillion

of pandemic-era spending from the economy in 2022.

In the wake of these policy shifts, economic forecasts for 2023 have changed a great deal throughout 2022. The

chart below illustrates how the median forecast from the Blue Chip panel of professional forecasts have changed

throughout 2022, for the U.S. GDP growth rate, unemployment rate, and 10-year interest rates. By the

December 2022 forecast, the median forecast for the entire year of 2023 was below 0.5% - not necessarily a

recession, but a clear slowdown from 2021 and 2022 growth rates. Forecasts of interest rates and the

unemployment rate progressed higher throughout the year as well.

Figure 9

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2023 Real GDP Growth 2023 10-year Treasury Rate 2023 Unemployment Rate

Changes in the Median Blue Chip Economic Forecasts for

U.S. Economic Indicators in 2023

Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22

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While the national economy was still resilient at the end of 2022, with unemployment only at 3.7% in

November, expectations are that rising rates will take a toll on growth, and the labor market, in at least the first

half of 2023.

For San Francisco, this means the macroeconomic tailwinds that have supported the recovery in employment

and commercial activity may wane in 2023. There are also reasons to believe that San Francisco could fare worse

in any recession than most other cities, because of the continuing importance of the tech industry to the City’s

economy and its post-COVID-19 recovery. Despite remote work, as noted above, tech has led the city’s

employment recovery, and the wealth effects of a booming stock market led San Francisco to have the fastest

GDP growth rates of any large county in the country, despite weak employment growth

Tech investment is highly sensitive to interest rates, however. In 2022, the stock market tumbled, and tech

stocks fared worse than most other parts of the market. Venture capital investment, which generally tracks tech

stocks, dropped as well. According to Pitchbook, U.S. venture capital dropped 52% between the third quarter of

2021 and the third quarter of 2022

. San Francisco’s tech industry has always relied on early-stage investment in

start-up companies to generate a sizable amount of its employment growth, and without that investment,

growth will most likely slow.

A slew of larger tech companies also announced layoffs, including DoorDash, SalesForce, Lyft, and Twitter. While

net employment in the tech sector was still rising through November 2022, it appears likely that tech will lead

any employment slowdown that San Francisco experiences in 2023. And, although remote work has weakened

the linkages between office commuters and downtown businesses, those workers still live in the city and near

the city, spend at local businesses, and invest in local real estate. An economic shock that adversely affects the

tech sector would inevitably ripple out to the rest of the local economy, notwithstanding the downtown office

vacancies.

In 2023 and beyond, the key macroeconomic question is how inflation responds to rising interest rates. The Fed

has remained committed to its 2% inflation target, and despite some recent softening of inflation, it remains

well above that target. If the Fed is required to maintain unusually high interest rates for an extended period of

time to curb inflation, that will continue to curtail the investment that drove San Francisco’s property values for

the past decade.

In summary, the cyclical and structural economic risks facing San Francisco in the next five years can be

summarized in Table 2 below.

Table 2: Structural Economic Risks

Bureau of Economic Analysis, “Gross Domestic Product by County, 2021”.

Pitchbook, Venture Monitor Q3 2022.

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On the structural side, fundamental uncertainty is the return-to-office question. If remote work remains

significant for office-using industries, and their office demand does not recover during the next five years, then

the path to economic growth will be more challenging, regardless of cyclical factors. In this event, in time, the

office market will adjust and San Francisco offices could become more affordable and attractive to a wider array

of businesses. However, this process will likely be slow and not completed within the forecast period.

For as long as remote work is limiting office demand by the city’s leading industries – particularly the tech

industry – then the recovery office market, downtown commercial activity, business tourism, and housing

demand are will be dampened. Unless there are further substantial declines in housing prices, affordability is

likely to remain a barrier to population recovery, and the city could remain below its pre-pandemic peak

population for some time.

If, on the other hand, current trends around remote work reverse and normal levels of office demand is restored

during the forecast period, the challenges facing sectors like housing, tourism, and small business will be eased,

and a population recovery is more likely.

The extent and duration of an economic slowdown in 2023 could either exacerbate or ameliorate these

structural challenges. A soft landing, a quickly tamed inflation rate, and falling interest rates in late 2023 or early

2024 would be excellent news for the city’s economy, particularly if the slowdown encourages more office

attendance. On the other hand, if inflation remains stubbornly high, and the Fed continues to raise interest rates

and/or keep them high for longer, then macroeconomic headwinds can deepen the city’s economic problems.

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PURPOSE OF THE PLAN

The Five-Year Financial Plan is part of a comprehensive effort by the City to improve its long-range financial

management and planning. This section, the Base Case projection, is a joint effort by the Mayor’s Office, the

Controller’s Office, and the Board of Supervisors’ Budget and Legislative Analyst’s Office to forecast the impact

of existing service levels and policies on revenues and expenditures over the next five years. The City is currently

implementing the following strategies as part of its long-range financial management and planning:

• The Five-Year Financial Plan: The City is forecasting revenues and expenses for the next five years on a

citywide basis, including departmental operations, facilities, debt management, capital, and technology.

• Two-Year Budgeting: The FY 2012-13 and FY 2013-14 budget was the first citywide two-year budget

adopted by the Mayor and the Board of Supervisors. The City has continued to utilize two-year rolling

budgets and most recently adopted the FY 2022-23 and FY 2023-24 budget.

• Citywide Capital and Technology Plans: These plans, which are released by March 1 every other year,

include detailed financial information and project descriptions outlining the City’s planned spending on

capital over the next ten years and technology over the next five years. This Five-Year Financial Plan

incorporates, to the extent possible, standards and assumptions that will be included in the upcoming

Capital and Technology Plans.

• Financial Policies: To date, the City has adopted a number of financial policies, including the creation of

an Economic Stabilization Reserve, modification of the General Reserve to increase deposits and make

withdrawals more flexible in a downturn, and restricting the use of one-time revenues. The forecast

assumes the City makes required deposits to the General Reserve. While preferable to the alternative,

these deposits will not be sufficient to return to pre-pandemic levels when the City had reached its goal

of 10% of General Fund revenue.

Multi-year budgeting and forecasting are best practices for all governments. The Five-Year Financial Plan is

designed to enhance the City’s ability to identify the key drivers of its revenues, expenditures, and needed public

services. The projected gap between revenues and expenditures is historically high due to sharp cost increases

at a time of very slow growth in tax revenues, including the loss of federal revenues and other one-time sources.

This five-year planning process will enable San Francisco to thoughtfully plan for the evolving fiscal picture and

adapt programs accordingly. Overall, the City will minimize volatility and risk by looking beyond the immediate

two-year budget horizon, resulting in more stable public service delivery that citizens can expect and rely on.

BUDGET OVERVIEW

The City and County of San Francisco’s budget for FY 2022-23 is $14.0 billion. Over half of the budget, $7.2

billion, is comprised of self-supporting activities at the City’s enterprise departments, which focus on City-

related business operations and include the Port, the Municipal Transportation Agency (MTA), the Airport, the

Public Utilities Commission (PUC), and others. The remaining 48%, or $6.8 billion, is comprised of General Fund

monies, which support public services such as public health, police and fire services, and public works. The City’s

budget can be broken down into six major service areas: Public Protection; Public Works, Transportation &

Commerce; Human Welfare & Neighborhood Development; Community Health; Culture & Recreation; and

General Administration & Finance.

City and County of San Francisco

FIVE-YEAR FINANCIAL PLAN

Five-Year Base Case Projection

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Figure 10 shows the total $14.0 billion citywide budget by major service area. The Public Works, Transportation

& Commerce major service area has the largest overall budget, due primarily to the budgets of large enterprise

departments.

Total Budget by Major Service Area FY 2022-23

Figure 10

There are 33,207 full-time equivalent positions (FTEs) budgeted and funded between all six major service areas

in FY 2022-23. As shown in Figure 11, the Public Works, Transportation, and Commerce service area also has the

largest share of FTEs, which is largely driven by the MTA.

Full Time Equivalent Positions (FTEs) by Major Service Area FY 2022-23

Figure 11

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FIVE-YEAR OUTLOOK FOR GENERAL FUND-SUPPORTED OPERATIONS

San Francisco Administrative Code Section 3.6(b) requires that in each odd-numbered year, the City must submit

a Five-Year Financial Plan; in even-numbered years, a similar report, called the Joint Report, must be issued with

an update to the remaining four years of the previous year’s Five-Year Financial Plan. In both the Five-Year

Financial Plan and the Joint Report, the Mayor, the Controller, and the Board of Supervisors’ Budget and

Legislative Analyst must forecast expenditures and revenues during the projection period. In the Five-Year

Financial Plan, the Mayor’s Office must also propose actions to balance revenues and expenditures during each

year of the plan and discuss strategic goals and corresponding resources for City departments. This Five-Year

Financial Plan provides expenditure and revenue projections for FY 2023-24, FY 2024-25, FY 2025-26, FY 2026-

27, and FY 2027-28.

Summary of ‘Base Case’ Projections and Findings

This Five-Year Financial Plan describes the ‘Base Case’ – a forecast of revenues and expenditures that projects

revenue trends and the costs to support current service levels, adjusting for adopted or proposed policy changes

where noted. Significant changes include known revenue and expenditure changes in all areas where there is

reasonable information or basis for a projection. Key assumptions are also detailed below.

Table 3 summarizes the projected changes in General Fund-supported revenues and expenditures over the next

five years. As previously shown in Table 1, this report projects shortfalls of $200.8 million in FY 2023-24, $527.5

million in FY 2024-25, $745.6 million in FY 2025-26, $991.7 million in FY 2026-27, and $1,224.1 million in FY

2027-28.

Table 3: Base Case – Summary of FY 2023-28 General Fund-Supported

Projected Budgetary Annual Surplus/ (Shortfall) ($ Millions)

The projection demonstrates that revenue growth from FY 2022-23 to FY 2023-24 is offset by slow growth in tax

revenue and loss of one-time sources, leading to an overall decrease in FY 2023-24 and FY 2024-25 sources

compared to the prior year. In all other fiscal years, revenues are projected to grow, but at a slow pace due to

anticipated structural changes in San Francisco’s economy that are easily outpaced by projected cost increases.

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The City currently projects revenue growth of $206.2 million, or 3% over the five-year period of this report, and

expenditure growth of $1,430.4 million, or 21.1%, as shown in Figure 12 below.

Projected Growth in General Fund Expenditures and Revenues

Figure 12

Total expenditure growth is shown below in Figure 13, which illustrates that citywide operating budget costs

represent the largest driver of the City’s deficit projection with 36% of the growth over the next five years, or an

increase of $514.9 million over the five-year period. Salaries and benefits represent the second largest area of

expenditure growth at 34%, or $490.7 million. The next largest drivers of expenditure growth are other

department-specific cost increases of $214.9 million (15%) and baselines cost growth of $209.9 million (15%).

General Fund-Supported Expenditure Increases by Expenditure Type FY 2024-28

Figure 13

While the projected shortfalls previously shown in Table 3 reflect the difference in projected revenues and

expenditures over the next five years if current service levels and policies continue, San Francisco’s Charter

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requires that each year’s budget be balanced. Balancing the budget will require some combination of

expenditure reductions and additional revenues. To the extent that budgets are balanced with new on-going

solutions, future shortfalls will decrease.

A key driver of projected shortfalls is increases in mandated costs. Many of the projected expenditure increases

are unavoidable, with limited ability to reduce spending to balance the budget. The City is required by law to

fund certain voter-mandated baselines and set-asides at specific levels. Additionally, assuming a constant City

workforce, non-discretionary health benefits will continue to rise. This limits the funding available for other uses

such as employee wage increases, cost-of-doing-business increases for non-profit service providers, capital and

technology investments, and other improvements to services to the public.

Key Assumptions Affecting the FY 2034-24 through FY 2027-28 Projections

• No major changes to service levels and number of employees: The projection assumes no major

changes to policies, service levels, or the number of employees from previously adopted FY 2022-23 and

FY 2023-24 budgeted levels unless specified below.

• Recovery continues, but high levels of remote work persist: San Francisco’s economic growth, and the

revenue derived from it, is heavily dependent on changes in employment, business activity, and tourism.

This report assumes changes in office use that occurred during the pandemic are long lasting, affecting

commercial and residential real estate and taxable gross receipts. While the recovery in travel and

tourism is stronger than prior forecasts, hotel tax revenues are not projected to reach their pre-

pandemic levels until FY 2026-27 and are subject to weakness in business travel and convention activity.

The Citywide Revenue Projections section of this report more fully details revenue assumptions.

• Implementation of measures adopted by voters in the November 2022 election: Projections assume a

net expenditure increase from these measures, including: costs to provide additional inflationary

increases to pre-1996 retiree pensions; savings from the elimination of the Department of Streets and

Sanitation and the consolidation of elections; creation of an oversight commission for the Department

of Homelessness and Housing; extension of General Fund transfers to the Library Preservation Fund; and

funding of a new baseline, the Student Success Fund.

• Previously negotiated wage increases and inflationary increases for open contracts in line with CPI:

This report assumes the additional salary and benefit costs for previously negotiated, closed labor

agreements. Police and Firefighters’ unions have closed memorandums of understanding (MOU)

through FY 2022-23 as a result of an amendment. Miscellaneous unions have closed MOUs through FY

2023-24. This report does not assume the recession trigger in these MOUs is met, which will be

revaluated for future projection updates. In open contract years, this report projects salary increases

equal to the change in CPI using the average projection of the California Department of Finance San

Francisco Area CPI and Moody’s SF Metropolitan Statistical Area CPI. This corresponds to 3.56% in FY

2023-24, 2.62% in FY 2024-25, 2.66% in FY 2025-26, 2.45% in FY 2026-27, and 2.51% in FY 2027-28.

Importantly, these assumptions do not indicate a willingness or ability to negotiate wage increases at

these levels, but rather are used for projection purposes.

• Pension investment returns meet expectations, but do not trigger a supplemental COLA: This report

assumes a return on San Francisco Employees’ Retirement System (SFERS) assets of 7.2%, the actuarially

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assumed rate of return. This projection does not assume that any on-going supplemental COLA payment

to certain retirees is triggered, which would require increased employer contributions.

• Health insurance cost increases: This projection assumes that the employer share of health insurance

costs for active employees will increase by 5.2% in FY 2023-24, 6.8% in FY 2024-25, 6.3% in FY 2025-26.

and then 6.0% in each of the remaining two years of the projection period, for an average of 6.0%

annually over the five years. Retiree health costs are assumed to grow by 5.3% in FY 2023-24, 6.8% in FY

2024-25, 6.3% in FY25-26, and then 6.0% in each of the remaining two years, an average of 6.1%

annually over the projection period.

• Inflationary increase on non-personnel operating costs: This projection assumes that the cost of

materials and supplies, professional services, contracts with community-based organizations, and other

non-personnel operating costs will increase by the rate of Consumer Price Index (CPI) starting in FY

2024-25 and thereafter. The projection reflects the adopted FY 2022-23 and FY 2023-24 budget, which

included a 4% cost-of-doing business increase for General Fund nonprofit contracts.

• Ten-Year Capital Plan, Five-Year ICT Plan, and inflationary increases on equipment: For capital, this

report assumes an increase to the adopted FY 2022-23 budget funding levels of $30 million in FY 2023-

24, with annual increases of $30 million thereafter, in line with the forthcoming recommendations in the

City’s upcoming FY 2024-33 Ten-Year Capital Plan. The IT investment projection assumes a $10 million

increase in FY 2023-24 funding of projects in the City’s Information and Communications Technology

(ICT) Plan with annual 10% increase in the following four years. For equipment, this report assumes the

budgeted level of funding in FY 2023-24, and annual growth based on CPI, which results in annual $0.3

million increases in the remaining four years of the forecast period.

• Deposits and withdrawals from reserves: Because General Fund revenue is generally forecasted to

grow slowly year-over-year, the City is not eligible to withdraw from or deposit to the City’s Rainy Day or

Budget Stabilization reserves. The projection only assumes reserve withdrawals that were previously

budgeted in FY 2023-24, primarily $90.2 million from the Fiscal Cliff Reserve, leaving an available

balance of $130.3 million. In accordance with Administrative Code Section 10.60(b), deposits to the

General Reserve are assumed in all years of the plan period, increasing from 2.0% of General Fund

revenue in FY 2023-24 to 3.0% in FY 2027-28. Furthermore, deposits to the Budget Stabilization Reserve

are expected in FY 2025-26, FY 2026-27, and FY 2027-28 as real property transfer tax begins to exceed

the prior five-year average as it begins to recover in the out-years.

• Property tax shifts: Beginning in FY 2018-19, the City’s General Fund received “Excess ERAF” property

tax allocations, after distributions from the Educational Revenue Augmentation Fund (ERAF) fulfilled all

other statutory distributions to other local taxing entities. This report assumes the City will continue to

receive Excess ERAF revenues in all years of the report according to current state law and assuming

enrollment increases in local schools. However, state budget shortfalls are very likely to result in

legislative proposals to alter ERAF allocations in a way that helps the state meet its Prop 98 school

funding requirements and reduces excess ERAF that reverts to the City.

• COVID-19 Response: The local cost of directly responding to the COVID-19 pandemic is projected to

decrease by $32.3 million in FY 2023-24 and will remain flat at $25 million during the remaining fiscal

years of the forecast period.

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• Non-General Fund revenue declines: This forecast only projects changes in General Fund revenues and

General Fund-funded expenditures. Other special purpose revenues, such as the November 2018

Proposition C Homeless Gross Receipts Tax and June 2018 Commercial Rents Tax, are also forecasted to

decline over the five-year period. However, because this report focuses on the General Fund’s position,

anticipated shortfalls in special revenue funds are not directly incorporated in the deficit.

Key Factors That Could Affect These Forecasts

As with all projections, uncertainties exist regarding key factors that could affect the City’s financial condition.

These include:

• Interest rate increases or other factors tip the nation into recession: This report assumes very modest

revenue growth over the forecast period given structural changes in office using sectors. It assumes

successive Fed interest rate increases slow growth without inducing a recession. However, there is

continuing discussion among economic forecasters of the likelihood of a mild recession beginning in the

first half of 2023. Assuming policymakers chose to completely deplete the City’s economic stabilization

reserves, the report estimates such a recession would increase the total shortfall amount by $339.0

million over the forecast period.

• Pending or proposed new programs or legislation: No pending or proposed legislative changes with a

fiscal impact are assumed in this projection. Legislation adopted by the Mayor and Board of Supervisors

with a fiscal impact would increase the projected shortfalls. Several appropriations for new program

initiatives are pending at the Board of Supervisors, and others may be proposed. Future projections will

include impacts from any subsequently adopted legislation.

• Revenue volatility from a highly progressive tax structure: The General Fund projection includes

revenue from the tax on executive compensation (November 2020 Proposition L) as well as revenue

from new transfer tax rates (November 2020 Proposition I). These sources add to the City’s already

progressive tax structure, increasing revenue volatility. In addition, both taxes will likely lead to a variety

of tax avoidance behaviors that are difficult to project in both form and timing, resulting in revenue that

could be higher or lower than projected.

• State fiscal shortfall: These projections assume excess ERAF property tax allocations continue under

current legal requirements. However, in its November 2022 fiscal outlook report, the state Legislative

Analyst Office projected a $24 billion shortfall in FY 2023-24 and ongoing deficits thereafter, increasing

the likelihood of legislative proposals to alter ERAF allocations in a way that reduces the draw on the

state’s general fund to meet its Prop 98 school funding requirements, which would reduce excess ERAF

that reverts to the City. In addition, discretionary state funding for housing, criminal justice, and other

local government grants will likely decline.

Tables 4 and 5 below, in addition to the subsequent narrative section, explain revenue and expenditure changes

in the citywide deficit in detail. First, revenue changes will be discussed, followed by expenditures changes,

including: changes to baselines and reserves; salary and benefit costs; citywide operating costs; and

department-specific changes.

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Table 4: Base Case – Key Changes to General Fund-Supported Sources & Uses – INCREMENTAL CHANGE

Sources & Uses FY 2024-28 ($ Millions)

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Table 5: Base Case – Key Changes to General Fund-Supported Sources & Uses – ANNUAL CHANGE

Sources & Uses FY 2024-28 ($ Millions)

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BASE CASE PROJECTION DETAIL

CITYWIDE REVENUE PROJECTIONS

The projections outlined in this section highlight changes in the City’s key revenues over the next five years,

building on both the trends outlined in the Economic Overview section and the most recent available data on

revenue collections. Detailed revenue assumptions are provided below.

General Fund Taxes, Revenues & Transfers

General Context Underlying Revenue Estimates

As detailed in the Economic Overview section, San Francisco faces the same macroeconomic and structural

pressures other cities face – high inflation, rising interest rates, and the persistence of work from home.

However, these trends are likely to have a larger impact on San Francisco than many other jurisdictions because

its economy is highly concentrated in sectors that are office-using and sensitive to interest rates. The Base Case

revenue forecast reflects the expectations of economic forecasters of very slow growth, and though the local

economy will need to contend with lasting structural change associated with remote work, the Federal Reserve

will be able to bring the economy into a “soft landing,” without triggering a recession. Should a recession occur,

revenues will be lower than forecasted in this report.

Overall growth rates of General Fund taxes, revenues, and transfers in are projected to be 2.9% in FY 2023-24, -

0.2% in FY 2024-25, and approximately 2.0% in FY 2025-26 through FY 2027-28. The City’s tepid revenue growth

is largely related to anticipated structural changes in the local economy, as office workers continue part- or full-

time remote work on a permanent basis, and in an elevated interest rate environment. These dynamics are

expected to result in sustained levels of office vacancies over the plan period and declining commercial and

residential real estate values, affecting property and transfer taxes. Increasing interest rates and sustained

remote work have a negative impact on the City’s business taxes. Rising interest rates change businesses’

investment decisions, and for some industries, businesses’ gross receipts taxes use payroll in San Francisco to

attribute business activity to San Francisco. In addition, the City is expected to receive its last reimbursement

from the Federal Emergency Management Agency (FEMA) for the COVID-19 public health emergency in FY 2023-

24, driving the overall decline in revenue in FY 2024-25.

Partially offsetting these reductions are the City’s tourism and hospitality sector, which expected to continue its

strong recovery through the plan period, benefitting hotel and sales taxes. In FY 2021-22, the City saw pent up

demand driving leisure travel, as well as the return of some conventions. Further bolstering the forecast, the

General Fund projection includes revenue from two new tax measures which the City has not yet begun

collecting: the tax on executive pay (November 2020 Proposition L) and the cannabis excise tax, which has been

delayed until FY 2026-27 (November 2018, Proposition D).

Below are details on key revenue streams included in the General Fund Taxes, Revenues, and Transfers line of

Table 4.

Property Tax

Overall General Fund property tax revenues are expected to grow slowly over the forecast period, from the

budgeted total of $2,379.5 million in FY 2022-23 to $2,449.6 million in FY 2027-28. General Fund property tax

revenue assumptions include:

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• Roll growth: The locally assessed secured property roll typically grows based upon an annual statewide

inflation factor (California CPI, capped at 2%) and new property value assessments triggered by changes

in ownership or newly constructed buildings. The unsecured property roll grows or shrinks based upon

the economic cycles and impacts on local businesses.

Projections for FY 2023-24 and FY 2024-25 assume 2.5% annual increases in the secured property roll

and no changes in the unsecured property roll compared to the July 1, 2022, valuations for FY 2022-23

(reflected on the 2022 Certificate of Assessed Valuation, or CAV). The rapid increase in interest rates

during calendar year 2022 dampened demand for commercial and residential purchases and new

construction, and the valuation of office properties is expected to be affected by a permanent increase

in remote work affecting office leasing demand and rents as existing leases come up for renewal. FY

2025-26 through FY 2027-28 projections assume the maximum annual Prop 13 allowable increase of 2%,

and all projections assume interest rates remain at levels similar to current rates throughout the

forecast period. The unsecured property roll is projected to remain unchanged through FY 2027-28.

• Supplemental and escape assessments: Supplemental assessments capture changes in value for the

portion of the tax year remaining after a trigger date that results in a change in the base year assessed

value of a property. The escape assessment captures a full year’s increase in assessed value up to four

years after the trigger date. This report assumes supplemental assessment revenue of $29.8 million in

FY 2023-24, $44.7 million in FY 2024-25, and $39.7 million per year in FY 2025-26 through FY 2027-28. FY

2023-24 projected revenues are dampened by the expectation that the mid-year go live date of the

Assessor’s new property assessment system will pause enrollments for a period of time. Escape

assessment revenue of $12.7 million per year is assumed in all years, as the Assessor's Office is largely

up to date with assessments and there is currently a dearth of transactions.

• Assessment Appeals Board reserve requirements: General Fund property tax revenue required to fund

Assessment Appeals Board (AAB) decisions is assumed at $70.8 million for FY 2023-24, $109.1 million for

FY 2024-25, $122.1 million for FY 2025-26, $133.9 million for FY 2026-27, and $137.6 million for FY 2027-

28. These projections include estimates derived from a model developed by the Controller’s Office of

Economic Analysis to gauge assessed value of office properties at risk given existing lease expiration

data and assumptions about vacancy, rental, and capitalization rates during the forecast period. The

model assumes office vacancy rates peak at 28.8% in 2023 and decline to 22.6% in 2026 and forward;

gross rent per square foot bottoms out at $151 in 2023 and increases to $165 by 2026; and cap rates of

just over 8% in 2023 and 7.5% in 2026. These assumptions yield a total office value at risk of $5.6 billion

in FY 2023-24, $10.4 billion in FY 2024-25, $11.1 billion in FY 2025-26, $13.3 billion in FY 2026-27, and

$14.9 billion in FY 2027-28. A separate model for residential properties assumes market values of some

detached single-family homes and other single-family dwellings (townhomes, condominiums) fall below

taxable values, starting with FY 2024-25 (FY 2023-24 value at risk of $1.7 billion is estimated). The

model’s output indicates assessed value at risk of refund of $4.3 billion in FY2024-25, $6.4 billion in FY

2025-26, $6.8 billion in FY 2026-27, and $5.6 billion in FY 2027-28.

In general, properties that were most recently built or traded are the most likely to receive temporary

reductions in assessed valuations, resulting in property tax refunds when applied to prior tax years.

Properties that have not changed ownership in recent years or were built many years ago are likely

already taxed at below current market value, making it less likely such properties will receive temporary

decreases. Timing of refund payments is dependent upon the appeals hearing schedule, which is

currently calendared with 2021 cases. Appellants often waive the statutory deadline for hearings so that

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multiple years’ appeals can be heard at the same time, increasing uncertainty and revenue volatility

projections as several years' tax refunds and statutory interest might get triggered in one future year.

• Excess Educational Revenue Augmentation Fund (ERAF): Excess ERAF represents the portion of

California county, city, and special district property tax revenues that revert to taxing entities once a

county’s educational entities reach the level of funding stipulated in state Proposition 98. In the City and

County of San Francisco, the only taxing entity contributing to ERAF, and therefore receiving excess

ERAF, is the City and County itself. Projections assume student attendance numbers and Proposition 98

funding levels along with property tax revenues for the City to arrive at excess ERAF estimates. This

report currently assumes excess ERAF revenue of $326.7 million in FY 2023-24, $292.8 million in FY

2024-25, $274.5 million in FY 2025-26, $261.2 million in FY 2026-27, and $254.6 million in FY 2027-28.

Business Taxes

General Fund business tax revenue is projected to grow from $881.7 million in FY 2023-24 to $1,025.0 million in

FY 2027-28. Business taxes include gross receipts taxes, business registration fees, and the administrative office

tax. Revenue from business taxes historically has followed economic conditions in the City. Figure 14 shows

actual and projected unemployment and wage growth from FY 2011-12 through FY 2027-28. Projected

unemployment remains low through the forecast period, as does projected wage growth.

However, in recent years, especially since the passage of Proposition F (discussed below), the gross receipts tax

has become dependent on fewer taxpayers. The top 10 taxpayers accounted for 19% of gross receipts tax

revenue in 2019 and 25% in 2021. Similarly, the top 50 taxpayers accounted for 34% of gross receipts tax

revenue in 2019 and 43% in 2021. Increasingly, circumstances specific to the largest companies could result in

large swings in gross receipt tax revenue, making it harder to project. This projection anticipates no economic

growth in the gross receipts tax base in 2023, 1% in 2024, and 3% in each of the remaining years of the forecast.

San Francisco Unemployment and Wage Growth

FY 2011-12 to FY 2027-28 Actuals and Projected

Figure 14

Source: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, Moody’s Analytics Forecast

Telecommuting and the Gross Receipts Tax Base

Since the pandemic began, there has been a fundamental shift in where office employees work. Originally,

telecommuting began as a public safety response to the pandemic, when offices were closed and on-site work

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was limited to essential employees. But over time, the severity of COVID-19 has lessened, in part due to

increased immunity from vaccines and from exposure to the virus. As it has lessened, the reasons for

telecommuting have shifted away from safety concerns to employee job satisfaction and productivity. This

suggests that there is no longer an expected increase in office work tied to the severity of the pandemic. Now,

returning to the office depends on negotiations between employers and employees. According to polling data

from WFH Research, soon after the pandemic began, employers planned on just over 1.5 days per week at home

on average when the pandemic ended but employees wanted more than 2.5 days at home. In polling data from

October 2022, employees’ desired amount of telecommuting had increased slightly to approximately 2.75 days

per week at home while employers’ plans have increased to about 2.25 days worked from home. This narrowing

gap suggests that employers and employees are coming closer to an agreement on how much work can be done

at home. While the degree of telecommuting in the long-term is still uncertain, it may be that the level of in-

office work has begun to stabilize.

In addition to the decline of the workforce in the City due to telecommuting, the population has declined as

well. From April 2020 to July 2021, the population of San Francisco declined by 6.7% according to the Census

Bureau. The population decline reduces payroll and thus reduces the gross receipts tax base in most industries.

Both telecommuting and population are important for the gross receipts tax base. For some business sectors,

such as information and financial services, the gross receipts tax depends in part on the share of a company’s

payroll that physically works within San Francisco. For example, if an employee works two days per week in the

office and three days per week at home from outside the City, then only 40% of that employee’s compensation

is included when determining the share of a company’s payroll generated in the City for gross receipts tax

purposes. This would then reduce the gross receipts tax generated by this employee by 40% in office-based

sectors, except information, where it would be reduced by half that amount, or 20%.

Telecommuting does have a smaller mitigating factor that supports the gross receipts tax base. Some San

Francisco residents previously commuted out of the City for work. To the extent that these out-commuters

telecommute from within the City, their payroll would now be included when calculating the gross receipts tax.

This report assumes that changes in telecommuting and population will reduce San Francisco payroll in office-

using industries by 40% from what it would have been without these changes. This assumption includes the net

effect of telecommuting from both in-commuters and out-commuters. There remains significant uncertainty

about this assumption. Currently, employers want more office work than employees do, which could lead to

further increases in office work. But this may change over time as office leases come up for renewal and

telecommuting allows employers to reduce their office space. In addition, in the past few months, layoffs have

been announced by some large San Francisco employers, such as Twitter, Meta, and Salesforce, which could also

decrease the gross receipts tax base.

Proposition F (2020)

In November 2020, voters adopted the Business Tax Overhaul measure (Proposition F) that altered the structure

of the City’s business tax to eliminate the payroll tax and increase the gross receipts tax over a period of four to

five years, beginning with tax year 2021. For certain business sectors, including information and financial

services, tax rate increases for tax year 2023 would be delayed to 2024 if citywide gross receipts in 2021 are less

than 90% of gross receipts in 2019 and increases for 2024 would be delayed to 2025 if gross receipts in 2022 are

less than 95% of gross receipts in 2019. The 90% threshold was not met. This report assumes that the 95%

threshold will be met and the tax increases on these sectors will be implemented in 2024. Should the 95%

threshold not be met in tax year 2024, business tax revenues will be approximately $20 million less in tax year

2024 than this report assumes, with the loss divided between FY 2023-24 and FY 2024-25.

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Sales Tax

Sales tax revenues are expected to grow from $205.8 million in FY 2023-24 to $232.2 million by FY 2027-28,

exceeding pre-pandemic levels by the end of the forecast period. Sales tax experienced significant losses in FY

2019-20 and FY 2020-21 because of the COVID-19 public health emergency. The City has seen lower daytime

populations from the lack of travelers and in-commuters shopping and eating in restaurants. In addition, the

Census Bureau estimates that San Francisco’s resident population declined 6.7% between April 2020 and July

2021. During this time, sales taxes declined by 15.7% year-over-year from a peak of $213.6 million in FY 2018-19

to $180.2 million in FY 2019-2020 and by 18.5% year-over-year in FY 2020-21 to $146.9 million. As businesses

reopened and restrictions on restaurants, hospitality, and travel eased in mid-2021, sales taxes in San Francisco

and in the state have rebounded. Sales taxes grew to $188.3 million in FY 2021-22, an annual improvement of

$41.5 million or 28.2%. The recovery was attributable to growth in restaurants and hotels, business and

industry, general consumer goods, and fuel and service stations. Higher prices due to inflation also contributed

to higher sales tax revenues. Sales taxes from restaurants and hotels grew by $18.0 million (76.2%), the business

and industry sector grew by $9.5 million (93.4%), general consumer goods grew by $7.5 million (25.1%), and

sales tax from fuel and service stations grew by $5.4 million (118.4%). Figure 15 shows the changes in local sales

tax.

Change in Local Sales Tax Revenues from Same Quarter Prior Year, FY 2011-12 through FY 2027-28

Figure 15

*Projected. Data adjusted for corrections by the California Department of Tax and Fee Administration.

Projected growth in FY 2023-24 is driven by continued but slowing recovery in the restaurant and hotel industry,

largely due to improved tourism and conventions, as well as elevated prices due to inflation. Sales taxes from

the statewide pool, fuel and service stations, and general consumer goods are all forecasted to grow, although

at a lesser pace. However, revenue growth in other industries is expected slow as consumer spending shifts due

to rising interest rates and recession concerns. In FY 2024-25 and beyond, the projection assumes growth

between 2.7% and 3.2% annually.

Hotel Tax

Hotel tax revenue for all funds is expected to grow from $302.6 million in FY 2023-24 to $412.7 million by FY

2027-28. The forecast assumes the hospitality industry recovers to pre-pandemic levels by the end of the plan

-50%

-40%

-30%

-20%

-10%

10%

20%

30%

40%

50%

Percent Change from Same Quarter Prior Year

Actual Projected

Page 34 of 106

period. During the pandemic, a large portion of the City’s hotels were closed as a result of global travel

restrictions, public health policies, and cancellation of conventions and events. Hotel tax revenues in FY 2019-20

and in FY 2020-21 declined 35.7% and 86.8% year-over-year. FY 2020-21 revenues were 91.5% below the FY

2018-19 peak, the last full pre-pandemic fiscal year. As COVID-19 restrictions eased and vaccines became more

widely available in FY 2021-22, the City’s hotel taxes began to recover and totaled $158.2 million, an

improvement of 376.7% over the prior year.

Visitors to the City, and resulting hotel tax revenues, are primarily derived from three groups of travelers -

leisure domestic and international tourists, individual business travelers, and from group events such as

conferences and conventions. Most visitors travel to San Francisco by air, with combined enplaned and

deplaned passengers shown in Figure 16. By July 2022, total domestic and international airline passengers at San

Francisco International Airport (SFO) hit a pre-pandemic peak of 4.2 million passengers. The total number of

passengers traveling through SFO was 155% greater in FY 2021-22 than the prior year, with growth of 137% in

domestic visitors and 281% in international visitors. The improvement in the international sector is primarily due

to easing of travel restrictions to most international regions. Passenger activity is projected to continue to

improve from pandemic related service reductions in both the domestic and international sectors.

San Francisco International Airport Passengers, July 2014 through November 2022

Figure 16

Hotel tax revenue is strongly correlated with revenue per available room (RevPAR), which is influenced by

average daily room rates (ADR) and occupancy rates. RevPAR declined to an all-time low of $14.40 in April 2020.

As a result of low occupancy rates and hotel closures, the “Total Room Inventory” (TRI) methodology is used

when calculating RevPAR to provide a consistent comparison to pre-pandemic RevPAR. The industry gradually

recovered in FY 2020-21 because of eased restrictions and vaccines. FY 2020-21 annual average TRI RevPAR was

$28 and hit a peak of $61 in June 2021. The recovery continued in FY 2021-22 largely due to the return of

conferences and conventions. In FY 2021-22, a total of 23 conferences with over 126,000 attendees took place in

Moscone Center, primarily in the third (24.0%) and fourth (62.7%) quarters of the fiscal year. This is compared to

zero events in FY 2020-21 and 54 events with over 723,000 attendees in FY 2018-19. Though nowhere near the

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

Total Airport Passengers Domestic (Enplaned+Deplaned) International (Enplaned+Deplaned)

Page 35 of 106

FY 2018-19 peak, the effects of compression pricing on RevPAR as a result of conventions is clear; RevPAR spikes

with each convention and as a result drives up hotel tax collections. The average TRI RevPAR was $100 and

peaked at $191 in June 2022. We project annual average RevPAR will continue to improve as tourists and

conventions return to San Francisco. Figure 17 provides actual and projected RevPAR levels from January 2018

through July 2028.

Actual Monthly and Projected Annual Average San Francisco Revenue per Available Room (RevPAR),

FY 2017-18 through FY 2027-28

Figure 17

November 2018 Proposition E allocates 1.5% of the 14% hotel tax rate (or approximately 10.7% of revenue) to

arts programming outside of the General Fund. Due to the unprecedented drop off in revenue, this allocation

declined to $4.5 million in FY 2020-21 and $19.2 million in FY 2021-22. As hotel tax revenue recovers, we

project the allocation will increase to $34.5 million in FY 2023-24 and $44.7 million by FY 2027-28.

Real Property Transfer Tax

Real property transfer tax (RPTT) revenue is projected to increase from $277.5 million in FY 2023-24 to $365.0

million in FY 2025-26 and thereafter. While increasing year over year, these figures represent reductions of

$145.8 million (34.4%) and $91.2 million (20.0%) from prior projections, reflecting the current decade-long low

in large commercial transactions. RPTT is one of the most volatile of all revenue sources and is highly sensitive to

economic cycles, interest rates, and other factors affecting global real estate investment decisions. The forecast

assumes that office and residential values are threatened by the persistent trend to work from home during the

plan period, resulting in fewer transfers and revenue compared to rate-adjusted historical average.

Due to the tiered structure of the tax, a small number of transactions (primarily high-value, commercial real

estate transactions) generates a disproportionate amount of revenue. For example, in FY 2021-22 transactions

$50

$100

$150

$200

$250

$300

RevPAR Total Room Inventory (TRI) RevPAR Projected Annual Average RevPAR

Page 36 of 106

over $10.0 million accounted for 1.0% of the number of total transactions but generated 69.6% of the revenue.

Compounding this source’s revenue volatility is November 2020 Proposition I, which doubled the transfer tax

rate on real estate transactions over $10.0 million. Prop I is projected to generate $119.3 million in FY 2023-24

and $156.9 million in FY 2027-28.

Tax on Executive Pay

In November 2020, voters approved Proposition L, which imposed a new general tax on businesses in the City

tied to the ratio of the total compensation of the highest-paid managerial employee to the total compensation

of the median employee in San Francisco. If this ratio is greater than 100:1, businesses will pay a tax that is a

percentage of their total San Francisco gross receipts. In this report, the measure is expected generate revenue

of $60 million in FY 2023-24, $80 million in FY 2024-25, and $100 million thereafter. This source is expected to

be highly volatile given the narrow base of expected payers, annual fluctuations in the value and form of

executive compensation, and potential relocation risk associated with tax increases.

Federal Emergency Management Agency Reimbursements

The plan assumes the City’s General Fund will receive $199.8 million of FEMA reimbursements for COVID-19-

related expenditures (incurred in prior years) in FY 2023-24, the last year of a five-year process. No FEMA

reimbursement revenue is anticipated after FY 2023-24.

Page 37 of 106

Table 6: Summary of General Fund Operating Revenues and Transfers in

FY 2021-28 ($ Millions)

FY 2021-22 FY 2022-23 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28

Year-End

Original

Budget

Projection Projection Projection Projection Projection Projection

Property Taxes 2,337.2$ 2,379.5$ 2,429.0$ 2,425.0$ 2,415.0$ 2,400.0$ 2,415.0$ 2,450.0$

Business Taxes 861.2 902.3 831.1 881.7 925.4 963.3 993.8 1,025.0

Sales Tax 188.3 182.9 203.7 205.8 211.3 218.1 225.0 232.2

Hotel Room Tax 158.2 188.9 257.4 302.6 347.9 382.9 400.7 412.7

Utility Users Tax 105.2 82.6 104.6 105.6 106.7 107.7 108.8 109.9

Parking Tax 71.1 80.2 80.4 84.1 87.9 90.6 92.5 94.5

Real Property Transfer Tax 520.3 390.5 233.8 277.5 321.2 365.0 365.0 365.0

Sugar Sweetened Beverage Tax 12.0 13.3 13.7 13.7 13.7 13.7 13.7 13.7

Stadium Admission Tax 4.6 5.4 5.4 11.3 11.3 11.3 11.3 11.3

Access Line Tax 55.8 47.1 52.9 54.7 56.2 57.7 59.1 59.1

Cannabis Tax - - - - - - 9.7 9.7

Executive Pay - 60.0 100.0 60.0 80.0 80.0 100.0 100.0

Local Tax Revenues 4,313.9 4,332.7 4,312.1 4,422.0 4,576.6 4,690.2 4,794.5 4,883.1

Licenses, Permits & Franchises 24.6 26.8 28.1 29.0 29.0 29.0 29.0 29.0

Fines, Forfeitures & Penalties 5.7 3.1 3.1 2.6 2.6 2.6 2.6 2.6

Interest & Investment Income 31.7 44.5 71.7 100.6 107.8 116.5 119.0 110.9

Rents & Concessions 11.3 13.1 13.1 13.3 13.3 13.3 13.3 13.3

Licenses, Fines, Interest, Rent 73.3 87.5 116.0 145.6 152.7 161.4 163.9 155.9

Social Service Subventions 14.8 1.8 316.4 322.6 322.6 322.6 322.6 322.6

Disaster Relief - FEMA & ARPA 495.8 243.4 183.4 199.8 - - - -

Other Grants & Subventions 282.5 316.4 1.8 1.7 1.7 1.7 1.7 1.7

Federal Subventions 793.2 561.6 501.6 524.1 324.3 324.3 324.3 324.3

Social Service Subventions 264.7 294.8 294.8 298.3 298.3 298.3 298.3 298.3

Health & Welfare Realignment - Sales Tax 234.2 222.6 247.3 252.8 261.9 271.1 281.0 291.1

Health & Welfare Realignment - VLF 49.3 46.6 45.8 49.1 51.9 51.9 51.9 51.9

Health & Welfare Realignment - CalWORKs MOE

25.9 17.6 17.6 17.4 17.4 17.4 17.4 17.4

Health/Mental Health Subventions 220.2 177.8 177.8 169.5 169.5 169.5 169.5 169.5

Public Safety Sales Tax 93.8 89.7 93.1 98.1 102.6 108.1 113.8 120.0

Motor Vehicle In-Lieu (County & City) 1.9 - - - - - - -

Public Safety Realignment (AB109) 52.1 61.7 60.9 66.5 68.4 70.6 72.9 75.3

Other Grants & Subventions 61.6 31.6 31.6 27.9 27.9 27.9 27.9 27.9

State Subventions 1,003.7 942.3 968.9 979.7 998.0 1,014.8 1,032.7 1,051.4

General Government Service Charges 51.7 54.7 54.7 54.9 54.9 54.9 54.9 54.9

Public Safety Service Charges 41.7 39.1 39.1 42.6 42.6 42.6 42.6 42.6

Recreation Charges - Rec/Park 19.4 26.9 26.9 27.0 27.0 27.0 27.0 27.0

MediCal, MediCare & Health Svc. Chgs. 71.3 75.1 75.1 73.9 73.9 73.9 73.9 73.9

Other Service Charges 32.3 21.6 21.6 20.6 20.6 20.6 20.6 20.6

Charges for Services 216.3 217.5 217.5 219.1 219.1 219.1 219.1 219.1

Recovery of General Gov't Costs 23.6 19.9 19.9 19.9 19.9 19.9 19.9 19.9

Other Revenues 23.7 22.0 22.0 23.1 23.1 23.1 23.1 23.1

TOTAL REVENUES 6,447.8 6,183.4 6,158.0 6,333.4 6,313.7 6,452.8 6,577.6 6,676.8

Transfers in to General Fund

Airport 37.9 37.1 37.1 45.8 52.1 55.4 58.0 61.3

Commercial Rent Tax Transfer In 28.7 34.0 27.3 26.0 29.1 30.8 32.8 34.8

Other Transfers 121.8 129.8 129.8 131.9 131.9 131.9 131.9 131.9

Total Transfers-In 188.5 200.9 194.1 203.6 213.1 218.1 222.7 228.0

TOTAL GF Revenues and Transfers-In 6,636.3 6,384.3 6,352.1 6,537.1 6,526.8 6,670.9 6,800.2 6,904.8

Page 38 of 106

Table 7 shows the percent change in General Fund revenues projected over the next five years.

Table 7: Year-Over-Year Changes in General Fund Revenue

FY 2021-28 ($ Millions)

FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28

% Chg from

FY 2022-23

Projection

% Chg from

FY2023-24

Projection

% Chg from

FY 2024-25

Projection

% Chg from

FY 2025-26

Projection

% Chg from

FY 2026-27

Projection

Property Taxes -0.2% -0.4% -0.6% 0.6% 1.4%

Business Taxes 6.1% 5.0% 4.1% 3.2% 3.1%

Sales Tax 1.0% 2.7% 3.2% 3.2% 3.2%

Hotel Room Tax 17.5% 15.0% 10.1% 4.6% 3.0%

Utility Users Tax 1.0% 1.0% 1.0% 1.0% 1.0%

Parking Tax 4.6% 4.5% 3.1% 2.1% 2.2%

Real Property Transfer Tax 18.7% 15.8% 13.6% 0.0% 0.0%

Sugar Sweetened Beverage Tax 0.0% 0.0% 0.0% 0.0% 0.0%

Stadium Admission Tax 109.3% 0.0% 0.0% 0.0% 0.0%

Access Line Tax 3.6% 2.6% 2.7% 2.4% 0.1%

Cannabis Tax N/A N/A N/A 100.0% 0.0%

Executive Pay -40.0% 33.3% 0.0% 25.0% 0.0%

Subtotal - Tax Revenues 2.6% 3.5% 2.5% 2.2% 1.8%

Licenses, Permits & Franchises 3.3% 0.0% 0.0% 0.0% 0.0%

Fines, Forfeitures & Penalties -16.2% 0.0% 0.0% 0.0% 0.0%

Interest & Investment Income 40.4% 7.1% 8.0% 2.1% -6.7%

Rents & Concessions 1.3% 0.0% 0.0% 0.0% 0.0%

Subtotal - Licenses, Fines, Interest, Rent 25.5% 4.9% 5.7% 1.5% -4.9%

Social Service Subventions 2.0% 0.0% 0.0% 0.0% 0.0%

Disaster Relief - FEMA & ARPA 8.9% -100.0% N/A N/A N/A

Other Grants & Subventions -3.9% 0.0% 0.0% 0.0% 0.0%

Subtotal - Federal Subventions 4.5% -38.1% 0.0% 0.0% 0.0%

Social Service Subventions 1.2% 0.0% 0.0% 0.0% 0.0%

Health & Welfare Realignment - Sales Tax 2.2% 3.6% 3.5% 3.6% 3.6%

Health & Welfare Realignment - VLF 7.2% 5.8% -0.2% 0.0% 0.0%

Health & Welfare Realignment - CalWORKs MOE -1.0% 0.0% 0.0% 0.0% 0.0%

Health/Mental Health Subventions -4.7% 0.0% 0.0% 0.0% 0.0%

Public Safety Sales Tax 5.3% 4.7% 5.3% 5.4% 5.4%

Motor Vehicle In-Lieu (County & City) N/A N/A N/A N/A N/A

Public Safety Realignment (AB109) 9.3% 2.8% 3.2% 3.3% 3.3%

Other Grants & Subventions -11.7% 0.0% 0.0% 0.0% 0.0%

Subtotal - State Subventions 1.1% 1.9% 1.7% 1.8% 1.8%

General Government Service Charges 0.3% 0.0% 0.0% 0.0% 0.0%

Public Safety Service Charges 8.9% 0.0% 0.0% 0.0% 0.0%

Recreation Charges - Rec/Park 0.6% 0.0% 0.0% 0.0% 0.0%

MediCal, MediCare & Health Svc. Chgs. -1.7% 0.0% 0.0% 0.0% 0.0%

Other Service Charges -4.5% 0.0% 0.0% 0.0% 0.0%

Subtotal - Charges for Services 0.7% 0.0% 0.0% 0.0% 0.0%

Recovery of General Government Costs 0.0% 0.0% 0.0% 0.0% 0.0%

Other Revenues 5.0% 0.0% 0.0% 0.0% 0.0%

TOTAL REVENUES 2.8% -0.3% 2.2% 1.9% 1.5%

Transfers in to General Fund

Airport 23.4% 13.8% 6.3% 4.7% 5.7%

Commercial Rent Tax Transfer In -4.8% 12.2% 5.9% 6.3% 6.1%

Other Transfers 1.6% 0.0% 0.0% 0.0% 0.0%

Total Transfers In 4.9% 4.7% 2.4% 2.1% 2.4%

TOTAL GF Revenues and Transfers-In 2.9% -0.2% 2.2% 1.9% 1.5%

Page 39 of 106

Changes in Use of One-Time Sources

The change in use of one-time sources consists of a combination of the change in use of starting fund balance

and use of reserves as described below.

Changes in Fund Balances

This report assumes the use of $318.0 million of fund balance, which includes $149.3 million of fund balance

previously appropriated in the FY 2023-24 adopted budget, $163.4 million previously assumed as a source in the

FY 2024-25 and FY 2025-26 shortfall projections, and $39.8 million of additional unappropriated fund balance

from the FY 2021-22 close. These balances are partially offset by $34.5 million of projected revenue weakness in

FY 2022-23. In this report, the $318.0 million of fund balance is spread across FY 2023-24 through FY 2025-26,

meaning that it is fully depleted mid-way through the forecast period by FY 2025-26.

Changes in Reserves

The City has a number of reserves intended to reduce the effect of revenue volatility on the City’s budget and

service levels, particularly in the case of economic shocks. Other reserves fund citywide expenses for labor,

litigation, and other costs. Table 8 outlines the projected balances of the City’s major reserves. The forecast

assumes the deposit of $57.5 million and withdrawal of $192.2 million to and from General Fund reserves in FY

2023-24. In FY 2024-25, it assumes deposits of $55.2 million and withdrawals of $39.8 million; in FY 2025-26,

deposits of $63.3 million and withdrawals of $40.6 million; in FY 2026-27 deposits of $76.9 million and

withdrawals of $41.3 million, and in FY 2027-28 deposits of $100.8 million and withdrawals of $42.1 million.

Selected key reserves are detailed below:

• General Reserve: Consistent with the financial policies adopted by the Board of Supervisors in April

2010 and codified in Administrative Code Section 10.60(b), this report anticipates the General Reserve

required balance to increase from 2.0% of General Fund revenue in FY 2023-24 to 3.0% by FY 2027-28,

incrementally increasing by 0.25% each year. During the COVID-19 public health emergency, the City’s

eligibility to draw from the Rainy Day Reserve allowed the General Reserve required deposit to drop

from 3% to 1.5%. This report assumes no use of the General Reserve in any year.

• Rainy Day Economic Stabilization Reserve: Charter Section 9.113.5 establishes the Rainy Day Reserve

Economic Stabilization Fund, an economic stabilization reserve funded by 50% of revenue growth over

5% that can be used to support the General Fund and San Francisco Unified School District (SFUSD)

operating budgets in years when revenue declines. Proposition C (November 2014) divided the existing

Rainy Day Economic Stabilization Reserve into a City Rainy Day Reserve (City Reserve) and a School Rainy

Day Reserve (School Reserve) with each reserve account receiving 50% of the existing balance.

Beginning in FY 2015-16, 25% of Rainy Day deposits went to the School Reserve, and 75% went go to the

City Reserve. No withdrawals from or deposits to this reserve are projected, because General Fund

revenues grow such that the withdrawal threshold is not met. There are also no anticipated deposits to

the Rainy Day School Reserve. Withdrawals from the School Reserve are made at the discretion of

SFUSD. In FY 2020-21, SFUSD authorized a $33.5 million withdrawal from this reserve, leaving a balance

of $1.0 million.

• Budget Stabilization Reserve: Established in 2010 by Administrative Code Section 10.60(c), the Budget

Stabilization reserve augments the Rainy Day Economic Stabilization Reserve. The Budget Stabilization

Reserve is funded by the deposit each year of 75% of real property transfer taxes above the prior five-

year average (adjusted for policy changes) and ending unassigned fund balance above the amount

Page 40 of 106

appropriated as a source in the subsequent year’s budget. Consistent with the Rainy Day Reserve, this

report assumes no withdrawals from the Budget Stabilization Reserve. The City is anticipated to deposit

to the Budget Stabilization Reserve in FY 2025-26, FY 2026-27, and FY 2027-28, given transfer tax

projections.

• Fiscal Cliff Reserve: The previously adopted FY 2023-24 budget appropriates $90.4 million of this

reserve, leaving a balance of $130.3 million. No other deposits or withdrawals are assumed for this

reserve.

Table 8: Projected Reserve Balances FY2023-FY2028 ($ Millions)

Other General Fund Revenues

Department of Public Health Revenues

The Department of Public Health (DPH) budget included $38 million in one-time revenue from Medi-Cal

settlements in FY 2022-23 budget. This one-time source is going away in FY 2023-24, resulting in a year-over-

year $38 million revenue decline.

Overall, DPH operating revenue is projected to increase by $24.7 million in FY 2023-24, $13.8 million in FY 2024-

25, $16.3 million in FY 2025-26, $15.3 million in FY 2026-27, and $16.1 million in FY 2027-28. The annual

increases in revenues are primarily driven by fee-for-service and capitation payments at the Zuckerberg San

Francisco General Hospital which are assumed to increase in line with CPI projections by 3.56% in FY23-24,

2.62% in FY 2024-25, 2.66% in FY 2025-26, 2.45% in FY 2026-27, and $2.51% in FY 2027-28. This report assumes

no change in revenue at Laguna Honda Hospital. Additionally, this report assumes no change in SF City Option

revenue which cannot be recognized until the completion of a three-year escheatment process as determined

by the City Attorney.

Projected Reserve Balances FY 2021-28 ($ in millions)

Ending

Balance

Deposit Use Proj Bal Deposit Use Proj Bal Deposit Use Proj Bal Deposit Use Proj Bal Deposit Use Proj Bal Deposit Use Proj Bal

Genera l Reserve 43.8$ 64.4 - 108.2$ 18.5$ - 126.7$ 15.4$ - 142.1$ 19.3$ - 161.3$ 19.6$ - 180.9$ 19.4$ - 200.3$

Rainy Day Economic Stabilization City Reserve 114.5 - - 114.5 - - 114.5 - - 114.5 - - 114.5 - - 114.5 - - 114.5

Budget Stabilization Reserve 265.8 - - 265.8 - - 265.8 - - 265.8 3.5 - 269.3 16.0 - 285.3 39.3 - 324.6

Economic Sta bilization Reserves 380.3 - - 380.3 - - 380.3 - - 380.3 3.5 - 383.8 16.0 - 399.8 39.3 - 439.2

Percent of General Fund Revenues 5.9% 6.2% 6.0% 6.0% 5.9% 6.1% 6.6%

Rainy Day Economic Stabilization SFUSD Reserve 1.0 - - 1.0 - - 1.0 - - 1.0 - - 1.0 - - 1.0 - - 1.0

Budget Stabilization Reserve - One Time Reserve 54.8 - (54.8) - - - - - - - - - - - - - - - -

COVID Response and Economic Loss Reserve 14.0 - (14.0) - - - - - - - - - - - - - - - -

Federal and State Emergency Grant Disallowance Reserve 81.3 - - 81.3 - - 81.3 - - 81.3 - - 81.3 - - 81.3 - - 81.3

Fiscal Cliff Reserve 229.8 - (9.3) 220.4 - (90.2) 130.3 - - 130.3 - - 130.3 - - 130.3 - - 130.3

Business Tax Stabilization Reserve 29.5 - - 29.5 - - 29.5 - - 29.5 - - 29.5 - - 29.5 - - 29.5

Public Health Management Reserve 123.9 - - 123.9 - - 123.9 - - 123.9 - - 123.9 - - 123.9 - - 123.9

Free City College Reserve 10.9 - (4.0) 6.9 - - 6.9 - - 6.9 - - 6.9 - - 6.9 - - 6.9

Mission Bay Transportation Improvement Fund

1.0 - - 1.0 - - 1.0 - - 1.0 - - 1.0 - - 1.0 - - 1.0

Hotel Tax Loss Contingency Reserve

3.5 - (2.5) 1.0 - - 1.0 - - 1.0 - - 1.0 - - 1.0 - - 1.0

Alternative Response Reserve

3.0 - (3.0) - - - -

Other Reserves 552.6 - (87.7) 465.0 - (90.2) 37 4.8 - - 374.8 - - 37 4.8 - - 374.8 - - 37 4.8

Litigation Reserve - 10.8 (10.8) - 11.0 (11.0) - 11.0 (11.0) - 11.0 (11.0) - 11.0 (11.0) - 11.0 (11.0) -

Salary and Benefits Reserve 17.9 21.7 (39.6) - 28.1 (28.1) - 28.8 (28.8) - 29.6 (29.6) - 30.3 (30.3) - 31.1 (31.1) -

Annual Operating Reserves 17.9 32.5 (50.4) - 39.1 (39.1) - 39.8 (39.8) - 40.6 (40.6) - 41.3 (41.3) - 42.1 (42.1) -

TOTAL, Ge neral Fund Re serves

994.7 96.8 (138.0) 953.5 57.5 (129.2) 881.8 55.2 (39.8) 897 .2 63.3 (40.6) 919.9 76.9 (41.3) 955.5 100.8 (42.1) 1,014.3

FY 2026-27

FY 2027-28

FY 2021-22

FY 2022-23

FY 2023-24

FY 2024-25

FY 2025-26

Page 41 of 106

Several other General Fund sources vary in their year-over-year change, and in total are projected to increase

by $4.5 million in FY 2023-24, $14.2 million in FY 2024-25, $9.1 million in FY 2025-26, $8.6 million in FY 2026-27,

and $9.5 million in FY 2027-28. These sources include Human Services Agency revenues and Airport revenues, as

well as other small changes.

• Human Services Agency Revenues: The Human Services Agency (HSA) is projected to draw incremental

state and federal revenues to pay for a portion of salaries and fringe benefit cost growth included in this

report. This results in a revenue increase of $3.0 million in FY 2023-24, $3.4 million in FY 2024-25, $2.7

million in FY 2025-26, $2.6 million in FY 2026-27, and $2.7 million in FY 2027-28.

• Airport Transfer In: The General Fund receives a portion of Airport concessions revenue annually. For FY

2023-24 through FY 2027-28, the Airport projects these revenues to increase by $8.7 million, $6.3

million, $3.3 million, $2.6 million, and $3.3 million respectively. The increase over the years reflects

higher revenues from public parking, car rental, ground transportation trip fees, duty-free, food and

beverage, and retail activities as it is expected that passenger traffic will continue to improve.

CITYWIDE EXPENDITURE PROJECTIONS

Uses – Baselines

The Charter specifies baseline-funding levels for various programs or functions that are generally linked to

changes in discretionary General Fund revenues (known as aggregate discretionary revenue or “ADR”), though

some are a function of citywide expenditures or base-year program expenditure levels.

The City’s mandated contribution to baselines is changing by $49.8 million, $46.5 million, $44.6 million, $36.2

million, and $32.8 million in FY 2023-24, FY 2024-25, FY 2025-26, FY 2026-27, and FY 2027-28 respectively.

Projected baseline contributions, property tax set-asides, and spending requirements are summarized below

and in Table 9. Please note that Table 9 includes both General Fund contributions to baselines, property tax set-

asides, non-General Fund contributions to baselines, and other mandated spending requirements. Thus, the

amounts do not match the changes in the General Fund projection presented in Table 1 and described above.

Page 42 of 106

Table 9: Projected Baselines, Set-asides and Other Mandated Costs, FY 2022-28 ($ Millions)

Municipal Transportation Agency Baselines: Charter section 8A.105 establishes a minimum level of funding for

the Municipal Transportation Agency (MTA) and the Parking and Traffic Commission within the MTA. Funding for

these two baselines is adjusted annually by the percent increase or decrease in General Fund ADR. In addition,

this baseline is required to be adjusted for significant service increases. Beginning in FY 2023-24, the MTA

baseline will be increased due to the anticipated opening of the Central Subway for revenue service. Also

included in the MTA baseline total is an amount equal to 80% of annual parking tax revenue as mandated by

Charter Section 16.110. Proposition B, passed by the voters in November 2014, additionally adjusts these

baselines by the growth in population; first, in FY 2015-16 by the cumulative growth in population during the

FY 2021-22

FY2022-23

FY 2023-24

FY2024-25

FY 2025-26

FY 2026-27

FY 2027-28

Deficit

Actua ls Budget Projection Projection Projection Projection Projection Projection Triggers

General Fund Aggregate Discre tionary Revenue (ADR) 4,307.2$ 4,329.1$ 4,291.8$ 4,433.2$ 4,595.3$ 4,7 7 2.0$ 4,883.1$ 4,969.7$

Municipal Tra nsportation Agency (MTA)

MTA - Municipal Railway Baseline: 6.686% ADR 288.0 289.4 286.9 296.4 307.2 319.0 326.5 332.3

MTA - Central Subway 3.9 16.5 16.5 17.5 18.3 19.0 19.0 19.0

MTA - Parking & Traffic Baseline: 2.507% ADR 108.0 108.5 107.6 111.1 115.2 119.6 122.4 124.6

MTA - Population Adjustment 55.6 59.8 58.0 82.5 91.4 97.2 102.1 105.7

MTA - 80% Parking Tax In-Lieu 56.9 64.1 64.3 67.3 70.3 72.5 74.0 75.6

Subtota l Municipal Transporta tion Agency 512.3$ 538.4$ 533.4$ 574.9$ 602.4$ 627.4$ 644.0$ 657.2$

Library Preserva tion Fund

Library - Baseline: 2.286% ADR 98.5 99.0 98.1 101.3 105.0 109.1 111.6 113.6 *

Library - Property Tax: $0.025 per $100 Net Assessed Valuation (NAV)

72.6 75.6 77.7 77.7 78.3 78.2 79.1 80.6

Subtota l Libra ry 171.0 174.6 175.8 179.0 183.4 187 .3 190.7 194.2

Children's Services

Children's Services Baseline - Requirement: 4.830% ADR 208.0 209.1 207.3 214.1 221.9 230.5 235.8 240.0

Children's Services Baseline - Eligible Items Budgeted 224.4 231.4 231.4

Transitional Aged Youth Baseline - Requirement: 0.580% ADR 25.0 25.1 24.9 25.7 26.7 27.7 28.3 28.8

Transitional Aged Youth Baseline - Eligible Items Budgeted 39.4 37.1 37.1

Early Care and Education Baseline (Jun 2018 Prop C) - Requirement: 2.2122% ADR

90.6 91.1 90.3 93.3 96.7 100.4 102.7 104.5

Public Education Services Baseline: 0.290% ADR (50% GF) 6.2 6.3 6.2 6.4 6.7 6.9 7.1 7.2

Children and Youth Fund Property Tax Set-Aside: $0.0375-0.4 per $100 NAV

116.1 121.2 124.3 124.3 125.3 125.1 126.6 129.0

Public Education Enrichment Fund: 3.057% ADR 131.7 132.3 131.2 135.5 140.5 145.9 149.3 151.9

1/3 Annual Contribution to Preschool for All

43.9 44.1 43.7 45.2 46.8 48.6 49.8 50.6

2/3 Annual Contribution to SF Unified School District

87.8 88.2 87.5 90.3 93.6 97.2 99.5 101.3

Student Success Fund (SFUSD)

11.0 35.0 45.0 60.0 61.1

Subtota l Childrens Services (Required) 577.6 585.1 584.2 610.3 652.7 681.4 709.8 722.6

Recrea tion and Parks

Open Space Property Tax Set-Aside: $0.025 per $100 NAV 72.6 75.6 77.7 77.7 78.3 78.2 79.1 80.6

Recreation & Parks Baseline - Requirement 79.2 82.2 82.2 85.2 88.2 91.2 93.3 94.9 *

Recreation & Parks Baseline - Budgeted 92.4 88.6 88.6

Subtota l Recreation a nd Pa rks (Required) 151.7 157 .8 159.9 162.9 166.5 169.4 172.4 17 5.6

Othe r Financia l Baselines

Our City, Our Home Baseline (Nov 2018 Prop C) - Requirement 215.0 215.0 215.0 215.0 215.0 215.0 215.0 215.0

Housing Trust Fund Requirement 42.4 45.2 45.2 48.0 50.8 52.8 54.0 54.9

Housing Trust Fund Budget 60.0 45.2 45.2

Dignity Fund 53.1 56.1 56.1 59.1 62.1 65.1 68.1 69.3 *

Street Tree Maintenance Fund 22.2 22.3 22.1 22.8 23.7 24.6 25.2 25.6

Municipal Symphony Baseline: $0.00125 per $100 NAV 3.7 4.0 4.0 4.2 4.3 4.4 4.5 4.5

City Services Auditor: 0.2% of Citywide Budget 15.6 16.7 16.7 17.0 17.4 17.6 18.0 18.3

Mission Bay Transportation Improvement Fund 7.6 8.8 8.8 9.1 12.7 13.0 13.2 13.5

Subtota l Other Fina ncial Ba selines (Re quire d) 359.6 368.1 367 .9 37 5.2 385.9 392.3 397 .9 401.2

Total Financial Baselines 1,772.3 1,824.0 1,821.2 1,902.3 1,990.9 2,057.7 2,114.9 2,150.8

Deficit Trigger FY2022-23

FY 2023-24

FY2024-25

FY 2025-26

FY 2026-27

FY 2027-28

Library Deficit Trigger (Est 21-22) 298.9 308.8 320.1 332.4 340.1 346.1

Student Success Fund (Est 22-23) 300.0 309.9 321.2 333.6 341.3 347.4

June Prop C Early Care and Education Baseline (Est 18-19) 193.0 199.4 206.7 214.6 219.6 223.5

DPW Street Tree Baseline (Est 18-19) 193.0 199.4 206.7 214.6 219.6 223.5

Recreation & Parks MOE Baseline (Est 16-17) 252.4 260.7 270.3 280.7 287.2 292.3

Dignity Fund (Est 17-18) 233.3 241.0 249.8 259.4 265.4 270.1

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most recent ten-year period, and subsequently by the annual growth in population. The population baseline is

only adjusted for population increases, not population decreases.

Combining all required baselines and parking tax transfers, the MTA is expected to receive $574.9 million in FY

2023-24, increasing to $657.2 million by FY 2027-28.

Library Preservation Fund: Charter Section 16.109 established a Library Preservation Fund to provide library

services and to construct, maintain, and operate library facilities. Consistent with the Charter, in FY 2006-07 a

base amount of funding was established, which is adjusted annually by the percent increase or decrease in ADR.

The City may temporarily suspend the required increases in any year in which a General Fund deficit of $300

million, which is adjusted annually by ADR or more is forecasted, discussed below. In addition, the Charter

established a property tax allocation of $0.025 for each $100 valuation of taxable property. A Charter

Amendment to renew the Library Preservation Fund for 25 years was adopted by voters in November 2022. The

combined baseline and property tax set-aside for the Library is projected to be $179.0 million in FY 2023-24,

increasing to $194.2 million by FY 2027-28.

Children’s Services: Several voter-approved measures support children’s services in the City. These include the

Children and Transitional Aged Youth baselines, Early Care and Education baseline, Children’s Fund property tax

set-aside, Public Education Enrichment Fund, and Student Success Fund, a new measure adopted in November

2022. Together, these requirements total $610.3 million in FY 2023-24, increasing to $722.6 million by FY 2027-

28.

• Children and TAY Baseline: Charter Section 16.108 established a Children and Youth Fund for Children

and TAY, where a base amount of required spending was established, adjusted annually by changes in

ADR.

• Early Care and Education Baseline: June 2018 Proposition C established a special purpose commercial

rent tax and an Early Care and Education baseline, where a base amount of required spending was

established, adjusted annually by changes in ADR. Table 8 shows expenditure amounts required by the

measure.

• Children and Youth Fund Property Tax Set-aside: November 2014 Proposition C extended a property

tax set-aside for Children and Youth for 25 years, until June 30, 2041, and increased the property tax set-

aside from $0.03 for each $100 of assessed property value in FY 2014-15 to $0.04 by FY 2018-19. In

addition, Proposition C added a new priority population to benefit Transitional Aged Youth (TAY).

• Public Education Enrichment Fund, Contribution and Baseline: November 2014 Proposition C also

extended the Public Education Enrichment Fund (PEEF) Annual Contribution for 26 years, until June 30,

2041, eliminated a provision that allowed the City to defer up to a quarter of the contribution to PEEF in

any year the City had a budget shortfall of $100 million or more, and eliminated a credit for in-kind

services allowed as an offset against the contribution.

• Student Success Fund: Charter Section 16.131 through Proposition G in November 2022 established a

Student Success Fund to provide grants to the San Francisco Unified School District (SFUSD) and schools

in the District to implement programs that improve academic achievement and social/emotional

wellness; and to require an annual appropriation in a designated amount to the Fund for 15 years. The

contribution amount is set through FY 2026-27 and will be adjusted annually according to changes in

ADR starting FY 2027-28 through its sunset in FY 2037-38.

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The City may temporarily suspend the required increases for Early Care and Education Baseline and Student

Success Fund contribution in any year in which a General Fund deficit of $200 million, which is adjusted annually

by ADR, or more is forecasted, as discussed below.

Recreation and Parks: Similar to the Library Preservation Fund, Charter Section 16.107 establishes a property

tax allocation of $0.025 for each $100 valuation of taxable property for the Recreation and Parks Department’s

Open Space Fund. In June 2016, voters adopted Proposition B, a charter amendment to establish additional

baseline appropriations to the Recreation and Parks Department. The measure requires the City to increase

appropriations by $3.0 million annually through FY 2025-26, after which the baseline is adjusted by changes in

ADR. The City may temporarily suspend the required increases in any year in which a General Fund deficit of

$200 million, which is adjusted annually by ADR, or more is forecasted, as discussed below. This report does not

assume suspension of required increases in any years. The combined baseline and property tax set-aside for the

Recreation and Parks Department is projected to be $162.9 million in FY 2023-24, increasing to $164.5 million by

FY 2027-28.

As shown in Table 10 below, for certain mandated baseline spending requirements, the City may temporarily

suspend the growth in payments to the baselines, should the City’s deficit reach a certain threshold, generally

between $200 to $300 million in FY 2023-24. This report does not assume suspension of required increases in

any years because the deficit triggers are activated by the deficit forecasted in the March Update to the Five-

Year plan. Should the March forecast remain the same as the current forecast, with a deficit of $200.8 million in

FY 2023-24, growth in the Street Tree Maintenance Fund and the Early Care and Education baselines could be

suspended for one year.

Table 10: Baseline Deficit Triggers ($ Millions)

Uses – Salaries & Benefits

This report projects General Fund supported salaries and fringe benefits to increase by $55.0 million in FY 2023-

24, $114.6 million in FY 2024-25, $88.1 million in FY 2025-26, $106.5 million in FY 2026-27, and $126.5 million in

FY 2027-28 for a total increase of $490.7 million over the five-year period. These increases, discussed in greater

detail below, reflect current staffing costs and provisions in negotiated collective bargaining agreements, health

and dental benefits for current and retired employees, retirement benefit costs, and other salary and benefit

costs.

Growth in salary and benefits has escalated significantly over recent years and continue to be a considerable

driver of increasing deficits in the final years of this report. The rise of salary and benefit costs over the five years

of this plan represent 34% of the expenditure growth in the deficit projections - the second largest expenditure

driver of the escalating deficit. Employer pension contributions continue to fall since peaking in FY 2020-21, but

the forecast varies year-to-year based on market returns. Further, employer costs associated with employee

health benefits continue to outpace general inflation.

Deficit Trigger FY 2023-24 FY2024-25 FY 2025-26 FY 2026-27 FY 2027-28

Library Deficit Trigger (Est 21-22) 308.8 320.1 332.4 340.1 346.1

Student Success Fund (Est 22-23) 309.9 321.2 333.6 341.3 347.4

June Prop C Early Care and Education Baseline (Est 18-19) 199.4 206.7 214.6 219.6 223.5

DPW Street Tree Baseline (Est 18-19) 199.4 206.7 214.6 219.6 223.5

Recreation & Parks MOE Baseline (Est 16-17) 260.7 270.3 280.7 287.2 292.3

Dignity Fund (Est 17-18) 241.0 249.8 259.4 265.4 270.1

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Previously Negotiated Closed Labor Agreements: This report assumes the additional salary and benefit costs for

previously negotiated, closed labor agreements, as well as other costs to maintain budgeted staffing levels.

These costs include prior-year cost of living adjustments (COLAs) and known increases on closed MOUs and are

projected to be $99.2 million for FY 2023-24. Costs for open contracts are discussed in the next section.

Projected Costs of Open Labor Agreements: Police and Firefighters’ unions have open MOUs through FY 2027-

28. This report assumes wage increases for these groups equal to the change in the Consumer Price Index (CPI),

calculated as the average projection of the California Department of Finance SF Metropolitan Statistical Area CPI

and Moody’s SF Metropolitan Area CPI, and equal to 3.56% for FY 2023-24, 2.62% for FY 2024-25, 2.66% for FY

2025-26, 2.45% for FY 2026-27, and 2.51% for FY 2027-28.

In addition to Police and Firefighters, most labor unions have open contracts starting in FY 2024-25 and will

enter negotiations for MOUs with the City in spring 2024. Therefore, beginning in FY 2024-25, this projection

assumes that these unions will also have wage increases equal to the change in CPI.

The additional salary and benefit costs for open collective bargaining agreements, using these assumptions, are

projected to be an additional $41.1 million in FY 2023-24, $133.0 million in FY 2024-25, $86.6 million in FY 2025-

26, $83.2 million in FY 2026-27, and $89.5 million in FY 2027-28. These increases are provided for projection

purposes only; actual costs will be determined in labor negotiations to be conducted in FY 2023-24 for police

officers and firefighters and in FY 2024-25 for most other employees.

Health and Dental Benefits for Current Employees: Each spring, the San Francisco Health Service System (HSS)

negotiates subsequent calendar year rates. The HSS Board adopts these rates in June, with approval by the

Board of Supervisors in July. HSS holds open enrollment for employees every October.

Projections in this report assume average increases of approximately 6.0% in health rates in each year for active

employees. Given these assumptions, health and dental insurance premium costs paid by the employer related

to current employees are projected to increase by $26.2 million in FY 2023-24, $22.0 million in FY 2024-25, $21.8

million in FY 2025-26, $22.3 million in FY 2026-27, and $23.6 million in FY 2027-28.

These rates are driven by utilization and the cost of health care. While the number of City employees is assumed

to remain relatively stable, price increases on the provider side for pharmacy, high-cost claims, and more

employees seeking health care could result in an increase in health care costs above what is assumed in this

report. Changes to the Affordable Care Act at the federal level remain a risk, and efforts to repeal, replace, or

otherwise change the law could have significant impacts on future health care costs. Other uncertainties include

the rising cost of pharmaceuticals and high labor costs can result in increased costs of health care, and

ultimately higher premiums.

Health and Dental Benefits for Retired City Employees: Charter Section A8.428 mandates health coverage for

retired City employees. The projection assumes that the cost of medical benefits for retirees will increase by an

average of 4.2% per year over the next five years. General Fund support for retiree health costs increases by

$2.2 million in FY 2023-24, $9.5 million in FY 2024-25, $10.2 million in FY 2025-26, $4.8 million in FY 2026-27,

and $5.0 million in FY 2027-28. Proposition B, passed by voters in June of 2008, began to address the City’s

unfunded liability by requiring employees hired after January 10, 2009, and the City to contribute 2% and 1% of

pre-tax compensation, respectively, into a Retiree Health Care Trust Fund. Proposition C, passed by voters in

November of 2011, enhanced Proposition B’s effects by requiring all remaining employees to begin contributing

to this fund beginning in FY 2016-17 with corresponding employer contributions. Starting July 1, 2016,

employees hired after January 10, 2009, began contributing 0.25% of pre-tax compensation into the retiree

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health care trust fund with additional 0.25% in each subsequent year, up to a maximum of 1%, with the City

matching the contribution commensurately.

The key uncertainties for retiree health benefits are the impact of the increasing cost of pharmaceuticals as well

as whether the federal government will continue to suspend the federal Health Insurance Tax and the excise tax

on high-cost employer health benefit places. Health costs are expected to increase faster than CPI over the five-

year projection period.

Employer Retirement Contribution Rates Above Previous Projections

Most City employees are members of the San Francisco Employees’ Retirement System (SFERS). A small number

of primarily public safety employees are members of the California Public Employees’ Retirement System

(CalPERS). Employer contributions to SFERS peaked in FY 2020-21, and since then have decreased due to

significant investment returns in that fiscal year. While rates continue to decrease during the forecast period, as

projected in the previous forecast, they are decreasing at a lower rate due to weakness in actual investment

returns. In FY 2021-22, the SFERS Board lowered their assumed rate of return from 7.4% to 7.2%. Additionally,

voter approval of Proposition A in November 2022 results in supplemental cost of living adjustments to pre-1996

retirees, which also increases the employer contribution rate.

The projected employer contribution rates, shown in Table 11 below, are based on projections prepared by the

Retirement System’s actuary in November 2022. The employer contribution varies based on three salary bands

for employees. The highest percentage rate for the City contribution is for the first band, representing

employees’ estimated earnings up to $68,491 per year. The City’s percentage of the contribution decreases in

the second band, which represents employee salary earnings between band one and $136,983 per year, and the

third band, salary earnings above $136,983 per year. All employees contribute 7.5% of salary to retirement, and

employees with salaries in bands two and three contribute an additional percentage based on the total

projected wage. Variances in investment returns and changes in actuarial assumptions (on wage and price

inflation and investment returns, for example) will affect employer contribution rates.

The employer contribution for the five-year outlook for employees in band two is projected to decrease from

15.0% in FY 2023-24 to 12.5% in FY 2024-25 and to 11.3% in FY 2025-26. Rates are projected to continue to

decrease to 10.8% in FY 2026-27, and then increase to 11.0% in FY 2027-28. Rates for sworn employees of the

Police and Fire departments vary depending on the date of hire. This report assumes the weighted average

employer contribution rate for FY 2023-24 for police officers and firefighters was 14.7%; lowering to 13.4% in FY

2024-25, and again rising to 14.2% in FY 2025-26, 14.8% in FY 2026-27, and to 17.3% in FY 2027-28.

Depending on the date of hire, employees participating in CalPERS contribute a minimum of 7.5% to 9.0% of

salary to retirement, plus an additional contribution based on labor agreement provisions. CalPERS rates are

projected to decrease over the forecast period, from 54.1% in FY 2023-24, to 49.6% in FY 2024-25, 45.2% in FY

2025-26, 41.0% in FY 2026-27, and 36.3% in FY 2027-28.

The net result of these changes to the employer share of SFERS and CalPERS contribution rates is a decrease in

costs of $89.6 million in FY 2023-24, then further decreases of $52.6 million in FY 2024-25, $30.7 million in FY

2025-26, $9.4 million in FY 2026-27, and an increase of $2.3 million in FY 2027-28. Failure to meet the assumed

rate of return or future, unbudgeted supplemental COLAs could dramatically impact this forecast.

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Table 11: Estimated Contribution Rates for the San Francisco Employees Retirement System (SFERS)

Other Salaries and Fringe Benefits Costs: Other salary and benefit cost changes include contributions toward

pre-funding retiree health costs, employment insurance, and overtime costs. Primarily due to one-time public

safety overtime costs in FY 2022-23 that are going away in FY 2023-24, the report projects a $24.2 million

savings in FY 2023-24. The report projects cost increase of $2.7 million in FY 2024-25, $0.9 million in FY 2025-26,

$0.9 million in FY 2026-27, and $0.9 million in FY 2027-28.

Uses – Citywide Operating Costs

Over the next five years, the City will also incur increasing non-salary operating costs. Citywide non-salary

operating costs are projected to increase by $78.5 million in FY 2023-24, $121 million in FY 2024-25, $113.3

million in FY 2025-26, $96.8 million in FY 2026-27, and an additional $105.3 million in FY 2027-28. The impacts

and costs associated with these increases span multiple departments and are described in more detail below.

San Francisco Employees Retirement System (SFERS)

FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28

Estimated Total Contribution Rates 24.5% 21.7% 19.7% 18.2% 18.4%

Non-Safety Employees

Employee Contribution

(1)

Band 1,< $32.93/hour 7.5% 7.5% 7.5% 7.5% 7.5%

Band 2, < $65.86/hour 9.0% 8.5% 8.0% 7.0% 7.0%

Band 3, > $65.86/hour 9.5% 9.0% 8.0% 7.0% 7.0%

Additional Rate Factors

Band 1,< $32.93/hour 0.6% 0.5% 0.4% 0.4% 0.4%

Band 2, < $65.86/hour 0.5% 0.5% 0.4% 0.4% 0.4%

Band 3, > $65.86/hour 0.5% 0.4% 0.4% 0.4% 0.4%

Estimated Net Employer Contribution

(1)

Band 1,< $32.93/hour 16.4% 13.71% 11.78% 10.33% 10.53%

Band 2, < $65.86/hour 15.0% 12.75% 13.30% 10.82% 11.01%

Band 3, > $65.86/hour 14.5% 12.27% 13.30% 10.82% 11.01%

Police and Fire Safety Employees

(2)

Estimated Total Contribution Rates 33.6% 30.8% 28.8% 27.3% 27.5%

Employee Contribution and additional rate factors 10.0% 9.5% 8.8% 7.8% 7.8%

Estimated Net Employer Contribution 23.5% 21.2% 20.0% 19.5% 19.7%

(1) Employees' contribution is based on wages. The wages shown are based on the estimated FY 2023-24 wage floors.

(2) Employees' base contribution rates vary with hire date.

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Citywide – Inflation on Non-Personnel Costs and Non-Profit Grants

This projection assumes that the cost of materials and supplies, professional services, contracts with

community-based organizations, and other non-personnel operating costs will increase by the rate of Consumer

Price Index (CPI) starting in FY 2024-25 and thereafter at a rate of 2.62% in FY 2024-25, 2.66% in FY 2025-26,

2.45% in FY 2026-27, and 2.51% in FY 2027-28. The projection reflects the adopted FY 2022-23 and FY 2023-24

budget, which included a 4% cost-of-doing business increase for General Fund nonprofit contracts. These

assumptions are provided for planning purposes only; actual costs are to be determined during the budget

process and are subject to appropriation in the FY 2023-24 and FY 2024-25 budget.

This report also includes cost projections over the five years to implement San Francisco’s minimum wage laws

and Minimum Compensation Ordinance (MCO). Minimum wage laws in San Francisco govern base wages for all

workers within the geographic perimeters of the City and County of San Francisco. The MCO applies only to

workers on contracts with the City and County of San Francisco.

In sum, these changes to the City’s projected costs result in an increase in General Fund costs of $35.6 million in

FY 2024-25, $37 million in FY 2025-26, $35 million in FY 2026-27, and $36.8 million in FY 2027-28.

Citywide – Capital, Equipment & Technology

Changes in funding for capital, equipment, and technology will result in General Fund costs of $66.5 million in FY

2023-24, $29.5 million in FY 2024-25, $38.5 million in FY 2025-26, $39 million in FY 2026-27, and $39.8 million in

FY 2027-28.

Table 12: Capital, Equipment, & Technology ($ Millions)

This projection assumes increased funding of the City’s General Fund capital program by $30 million annually

throughout the forecast period from FY 2023-24 through FY 2027-28. With this proposed level of funding, the

City’s General Fund facilities backlog, which resulted from the reduced capital funding due to the COVID-19

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budget shortfall, is projected to start decreasing in FY 2027-28. This General Fund capital program projection is

expected to align with the updated FY 2024-33 Ten Year-Capital Plan, to be released in spring 2023.

Additionally, the City will incur costs to furnish and equip new and upgraded City facilities. These costs will

increase by $8.4 million in FY 2023-24, decrease by $8.4 million in FY 2024-25, and remain at no cost during the

remainder of the forecast period. These costs are associated with HSA’s exit from 170 Otis and the retrofits and

renovations of the African American Art and Culture Complex (AAACC) and the Mission Cultural Center for

Latino Art (MCCLA). The subsequent savings and flat budget are due to no other planned moves or renovations

between FY 2024-25 through FY 2027-28.

Citywide equipment costs are projected to increase by $1.7 million in FY 2023-24, as reflected in the previously

adopted FY 2022-23 and FY 2023-24 budget. Increased cost assumptions based on CPI result in annual $0.3

million increases in FY 2024-25, FY 2025-26, FY 2026-27, and FY 2027-28. Equipment is defined as an item

costing $5,000 or more with an excepted life span of three years or more. This projection assumes that no

equipment purchases will be funded through the use of lease revenue bonds in any of the five years. By using

cash instead of debt financing, the City saves on financing costs, reducing the long-term overall cost of

equipment purchases.

This report assumes an increase of $10 million in FY 2023-24 to the total citywide technology projects allocation,

and growth of 10% in every year thereafter. Citywide costs for annual information technology projects are

projected to increase by $9.7 million in FY 2023-24 and $10.4 million in FY 2024-25, then decrease by $3.5

million in FY 2025-26, and increase by $8.5 million in FY 2026-27 and $5.1 million in FY 2027-28.

The citywide costs for major information technology projects are forecast to increase by $5.3 million in FY 2023-

24, decrease by $6.5 million in FY 2024-25, increase by $7.7 million in FY 2025-26, decrease by $3.9 million in FY

2026-27, and remain flat in FY 2027-28. The primary driver of the FY 2023-24 increase is the investment to

replace the City’s Computer Aided Dispatch (CAD) systems. The major and annual allocation is consistent with

the City’s Information and Communication Technology (ICT) Plan for FY 2023-24 through FY 2027-28, to be

released in spring 2023.

Finally, the Department of Technology’s rates, which are based on estimated cost growth on technology

contracts, are projected to increase by $11.3 million in FY 2023-24, $3.7 million in FY 2024-25, $4.0 million in FY

2025-26, $4.0 million in FY 2026-27, and $4.3 million in FY 2027-28 due to inflationary increases on technology

services and contracts.

Citywide – Debt Service & Real Estate

Over the next five years, total debt service and real estate costs are projected to increase by $30.8 million in FY

2023-24, $40.4 million in FY 2024-25, $22.4 million in FY 2025-26, $8.7 million in FY 2026-27, and $14.1 million in

FY 2027-28. This projection is based on current debt repayment requirements and projected debt service costs

for investments anticipated in the Capital Plan, as well as cost increases related to the City’s leased and owned

real estate portfolio. The increases over the next several years are primarily due to the repayment of new

Certificates of Participation (COPs) for critical repair and recovery stimulus projects, street repaving, the exit and

relocation from the Department of Public Health office building, the relocation of administrative staff from the

Hall of Justice, the exit and relocation from the Human Services Agency office building, and debt service

payments on other large capital facilities.

Citywide – Sewer, Water, and Power Rates

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The Base Case assumes increased General Fund transfers to the Public Utilities Commission (PUC) for the cost of

sewer, water, and power expenses, which includes the cost of natural gas provided by Pacific Gas & Electric

Company. These costs are modeled using projected utility rates and volume usage by General Fund

departments, factoring in other macroeconomic inputs. Power rates are projected to increase by three cents per

kilowatt hour per year until cost of service is reached. Sewer and water rates are assumed to increase

respectively by approximately 9% and 6% annually.

In addition to the rate, increases in power expenses are driven by high gas costs, as well as overall economic

recovery and return to office causing an increase in the electric load. Similarly, the increased costs of water and

sewer are driven by escalating utility rates and COVID-19 recovery-related consumption increases. However,

water and sewer costs also factor in conservation, as it relates to the ongoing drought. As a result, the projection

assumes increased annual cost increases of $9.3 million in FY 2023-24, $6.0 million in FY 2024-25, $6.0 million in

FY 2025-26, $5.8 million in FY 2026-27, and $5.6 million in FY 2027-28.

COVID-19 Response

The local cost of directly responding to the COVID-19 pandemic is projected to decrease by $32.3 million in FY

2023-24 to reflect a continued reduction in response service levels related to the pandemic. This projection

assumes the costs incurred by the General Fund related to COVID-19 response efforts will remain flat at $25

million during the forecast period.

Worker’s Compensation

This report assumes that Worker's Compensation costs will increase by $6.3 million in FY 2023-24, $3.8 million in

FY 2024-25, $4.0 million in FY 2025-26, $4.2 million in FY 2026-27, and $4.4 million in FY 2027-28. The projected

cost increases are attributed to increased claim filing rates, largely related to the COVID-19 pandemic, and the

more severe nature of reported injuries. Additional factors contributing to projected cost growth include

increased benefit rates adopted by the California Division of Workers’ Compensation that have risen sharply in

the last two fiscal years, inflation on medical services, and increased employer assessments from the California

Department of Industrial Relations.

Other Citywide Costs

This category includes increases in other costs across citywide services, including fleet maintenance, risk

management, and contract monitoring. Additionally, it includes Soda Tax expenditures, the temporary General

Fund backfill of the Hotel Tax for the Arts, and one-time savings in FY 2023-24 from the radio maintenance

project. These items together result in a decreased General Fund cost of $2.0 million in FY 2023-24, then a cost

increase of $5.7 million in FY 2024-25, $5.3 million in FY 2025-26, $4.1 million in FY 2026-27, and $4.7 million in

FY 2027-28.

Uses – Departmental Costs

This section provides a high-level overview of significant departmental costs over the next five years. Table 4

displays departmental cost decreases of $11.7 million in FY 2023-24, followed by increases of $49.0 million in FY

2024-25, $46.7 million in FY 2025-26, $62.1 million in FY 2026-27, and $68.8 million in FY 2027-28.

City Administrator’s Office – Convention Facilities Subsidy

This report assumes the Convention Facilities Fund General Fund subsidy will decrease by $1.6 million in FY

2023-24, increase by $2.8 million in FY 2024-25, decrease by $5.1 million in FY 2025-26, no change in FY 2026-

27, and increase by $0.2 million in FY 2027-28. The projected cost increases and decreases are based on

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currently scheduled conventions and projected attendance, which is weaker in the short-term as convention

business returns from COVID-19 pandemic levels.

Elections – Number of Scheduled Elections

The number of elections and the associated costs to hold elections vary annually. In November 2022, San

Francisco voters passed Proposition H, shifting Mayoral and other citywide official elections to even-numbered

years. With this change, current projections assume five elections during the projection period, shown in Table

12. This schedule results in a projected cost increase of $1.1 million in FY 2023-24, a decrease of $0.2 million in

FY 2024-25, an increase of $1.2 million in FY 2025-26, a decrease of $0.3 million in FY 2026-27, and finally an

increase of $1.2 million in FY 2027-28. Any special election not included in this projection would result in

increased General Fund costs dependent on the complexity of the ballot and the size of the electorate.

Table 13: Number of Scheduled Elections FY 2023-24 Through FY 2027-28

Fiscal Year

Date

Type

2023-24

March 2024

Presidential Primary

2024-25

November 2024

General

2025-26

June 2026

Direct Primary

2026-27

November 2026

General

2027-28

March 2028

Presidential Primary

Ethics Commission – Public Financing of Elections

The Ethics Commission administers the Election Campaign Fund. Per the charter, the City must appropriate

$2.75 per resident each fiscal year. In the case of a Mayoral vacancy, the fund is required to contain $8.00 per

resident for that election and for the next regularly scheduled Mayoral election. Funds not used in one election

are carried over for use in the following election, and any funds in excess of $7.0 million shall be returned to the

General Fund.

This projection assumes that the General Fund will appropriate an amount equal to $8.00 per resident in FY

2024-25 and that eligible candidates will qualify and accept disbursements each fiscal year based on historical

actuals. Therefore, no cost increase is projected for FY 2023-24. However, costs are projected to increase by

$5.1 million in FY 2024-25, decrease by $5.0 million in FY 2025-26, increase by $1.2 million in FY 2026-27, and

finally increase by $0.7 million in FY 2027-28.

Mission Bay Transportation Improvement Fund

The Golden State Warriors completed the construction of a multipurpose event center, retail, and office project

at 16th Street and 3rd Street in Mission Bay in September 2019. In November 2015, the Mayor and Board of

Supervisors approved the creation of the Mission Bay Transportation Improvement Fund to pay for public

infrastructure improvements, equipment, and public services to address the community’s transportation needs

and other impacts in connection with events at the center. The deposits to the fund are calculated based on

general purpose revenues generated by the arena and event space through the increased property, business,

sales, hotel, utility user, and stadium admission taxes. This report projects estimated annual incremental project

costs of $0.3 million in FY 2023-24, $3.6 million in FY 2024-25, $0.3 million in FY 2025-26, $0.3 million in FY 2026-

27, and $0.3 million in FY 2027-28.

Affordable & Permanent Supportive Housing Project Costs

The City expects to incur significant costs in all years of the five-year projection related to its current affordable

and permanent supportive housing projects. The Local Operating Subsidy Program (LOSP) subsidizes housing for

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formerly homeless individuals and families. This City-funded subsidy enables formerly homeless individuals and

families to stay securely housed and receive services from the Department of Homelessness and Supportive

Housing by providing long-term financial support for operating and maintaining permanently affordable housing

properties. LOSP program costs are projected to increase due to several large supportive housing projects

opening in the next few years. This forecast also includes projected lease inflationary costs for permanent

supportive housing sites in the City’s portfolio. The projected costs related to these projects are expected to

increase by $1.1 million in FY 2023-24, $6.7 million in FY 2024-25, $5.9 million in FY 2025-26, $10.5 million in FY

2026-27, and $8.9 million in FY 2027-28.

Human Services Agency – In-Home Supportive Services and Other Public Benefit Programs

In-Home Supportive Services (IHSS) is an entitlement program that provides homecare services to 25,000 low-

income elderly, disabled, and/or blind San Franciscans, enabling them to live safely in their own homes rather

than in a nursing home or other group care facility. The program employs over 24,000 individuals in San

Francisco as independent providers who assist clients with domestic and personal care services.

The local share of the IHSS program, which is funded with a mix of federal Medicaid, State, and local funds, is

paid using a “maintenance of effort” (MOE) framework. Per state statute, this cost increases 4% annually and for

a share of locally-negotiated cost increases. Locally, the City has made legislative changes that further increased

the costs of the IHSS program. The Minimum Compensation Ordinance (MCO), which passed in fall 2018, raised

the base wages for several types of workers, including IHSS workers, above the San Francisco minimum wage. By

FY 2022-23, the MCO base wage for IHSS care providers is slated to reach $19.25 per hour, subject to annual

appropriation. The City’s share of increased wages for IHSS workers translates into an increase to the City’s IHSS

MOE obligation. Overall, the MOE is projected to grow to a $219.3 million General Fund cost by FY 2027-28.

Based on current estimates, which include CPI-based wage increases, City costs for IHSS are expected to increase

annually by $12.5 million in FY 2023-24, $8.6 million in FY 2024-25, $9.5 million in FY 2025-26, $10.0 million in FY

2026-27, and $10.9 million in FY 2027-28.

Another set of benefit-related costs within the Human Services Agency (HSA) is due to changes in federal

funding for family and children’s services, such as foster care. The Title IV-E Waiver, in effect since September

2014, has allowed San Francisco’s child welfare and juvenile justice departments to shift federal out-of-home

placement dollars to preventive services. Under the IV-E waiver, San Francisco invested in programs and services

for families and children with the goals of improving permanency outcomes, increasing child safety, promoting

family engagement, and decreasing re-entry. The waiver ended in fall 2019, so these investments are no longer

eligible for the same levels of federal funding. While new federal funding under the Families First Preventative

Services Act (FFPSA) will offset some local costs, the City still anticipates a net revenue loss from the end of the

waiver and temporary transition funding. This report assumes that the City maintains the level of service in the

adopted FY 2023-24 budget and uses one-time sources from FFPSA transition funding and savings through FY

2027-28 to cover the funding gap caused by the loss of federal funding. This will result in no General Fund cost in

FY 2023-24, FY 2024-25, FY 2025-26, and FY 2026-27, and a $6.7 million cost in FY 2027-28.

Finally, HSA projects that aid payments to clients (including programs such as CAAP, Foster Care, CalWORKs,

Care Not Cash, and others) will increase costs by $6.9 million in FY 2023-24, $1.2 million in FY 2024-25, $0.8

million in FY 2025-26, $0.7 million in FY 2026-27, and $1.2 million in FY 2027-28. These changes are primarily due

to several causes. One driver is a recent surge in the homeless CAAP caseload, which has both grown and cost

more per case while the City, during the pandemic, has been less able to offer shelter beds in lieu of cash aid.

San Francisco’s refugee aid caseload has also grown recently because of an influx of Ukrainian refugees. Lastly,

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both the CalWORKs and CAAP monthly aid payment amounts have increased significantly as of October 2022,

due to policy efforts to make these aid benefits maintain pace with the increased cost of living.

Downtown Recovery and Activation

In June 2021, the City established measures to bolster the recovery of the City’s Economic Core, which includes

Downtown, South of Market, Union Square, Civic Center, Mid-Market, Yerba Buena, and Mission Bay. Part of the

Mid-Market Vibrancy and Safety Plan One program placed Community Ambassadors on blocks in the Mid-

Market area to engage with residents and visitors, support people in need and connect them with services,

address safety issues, and support the cleanliness of the area. Along with the Community Ambassadors, the

program also funds activations of public spaces and ground floor retail spaces. This report assumes the same

level of funding from the adopted FY 2022-23 and FY 2023-24 budget, which is a reduction of $14.4 million in FY

2023-24, and an additional reduction of $19.9 million in FY 2024-25, with no further costs assumed for the

remainder of the projection period. Any expansions of these programs will be part of later policy decisions and

are not incorporated into this report.

2022 Election Measures

The costs of implementing several election measures that voters passed in June and November 2022 are

assumed in this report.

In June 2022, San Francisco voters approved Proposition D, creating the Office of Victim and Witness Rights. This

Office will add an estimated $1.0 million in annual costs beginning in FY 2023-24 for staffing and basic

operations.

In November 2022, San Francisco voters approved Proposition B, dissolving the Sanitation and Streets

Department (SAS) created in 2020, and returning its functions to DPW. The Sanitation and Streets Commission

will remain to hold public hearings and set policies regarding sanitation standards and protocols, and

maintenance of the public right of way. In the previous budget, building out SAS was projected to increase costs

by $2.3 million in FY 2023-24. Now, returning departmental resources to DPW reduces the cost by $1.4 million,

to an increased cost of $0.8 million in FY 2023-24, with costs remaining flat for the rest of the projection period.

Voters also approved Proposition C in November 2022, creating a Homelessness Oversight Commission costing

an estimated $0.4 million for staffing in FY 2023-24 and staying flat for the remainder of the projection period.

Lastly, San Francisco voters approved Proposition G to establish a Student Success Fund baseline that will cost

$11 million in FY 2023-24, increasing by $24 million in FY 2024-25, $10 million in FY 2025-26, $15 million in FY

2026-27, and $1.1 million in FY 2027-28 to reach a total General Fund contribution of at least $60 million

annually.

In total, in order to implement 2022 election measures adopted by San Francisco voters, the General Fund cost

will increase by $13.2 million in FY 2023-24, $24 million in FY 2024-25, $10 million in FY 2025-26, $15 million in

FY 2026-27, and $1.1 million in FY 2027-28 for a total of $63.4 million by the final year of the projection.

Public Health – Operating Costs

Department of Public Health (DPH) operating cost projections increase by $20.4 million in FY 2023-24, $25.3

million in FY 2024-25, $25.6 million in FY 2025-26, $26.9 million in FY 2026-27, and $34.2 million in FY 2027-28.

These increases reflect the inflationary pressures exceeding regular CPI increases at the Department’s hospitals

and clinics related to pharmaceuticals, FF&E costs, and cost increases related to the UCSF Affiliation Agreement,

which provides the clinical staff at Zuckerberg San Francisco General Hospital.

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FY 2022-23 One-Time Community Support Initiatives

The FY 2022-23 budget included one-time funding for a variety of community support initiatives. This projection

assumes the expiration of these one-time funds in line with adopted budget, including $15.0 million for COVID-

19 food security programs, $14.0 million for nonprofit capital and acquisition, $11.0 million for the Sunnydale

Commercial and Community Center, $10.0 million for the Small Business Grants pool, and $5.0 million for

Permanent Supportive Housing capital improvements. Costs related to these projects result in a decrease of

$62.0 million of General Fund in FY 2023-24 with no further changes in the later years.

All Other Departmental Savings/(Costs)

This section includes other smaller departmental changes including the expiration of limited-term funding

project costs and several other small changes. These items together result in a cost of $10.7 million in FY 2023-

24, incremental savings of $8.2 million in FY 2024-25, a cost of $3.5 million in FY 2025-26, savings of $2.2 million

in FY 2026-27, and a cost of $3.4 million in FY 2027-28.

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FISCAL STRATEGIES FOR A CHANGED LONG-TERM OUTLOOK

The COVID-19 pandemic that began in March 2020 brought about dramatic financial changes for the City and

County of San Francisco, beginning with an historically high $1.5 billion two-year deficit projection in the initial

two budget years. Despite substantial local revenue losses, the City overcame this deficit with the help of federal

revenues, a disciplined use of reserves, and exercising financial constraint in its spending throughout the last few

years. By January 2022 – just a year ago – this City projected a modest surplus in the two-year budget outlook

with the help of record returns in the City’s pension investments. Today, that optimistic outlook has taken a

stark turn yet again, but this time based on a more negative long-term outlook in the City’s revenue sources.

This base case projection considers revenue trends and costs to support current service levels, with cost growth

projected where there is a reasonable basis to assume such increases. As is typical in these forecasts,

expenditure growth escalates throughout the five-year period, although from an even higher basis than in

previous forecasts due to new wage rates for most City employees and other Citywide operating and

departmental program costs. What’s changed most significantly from prior projections is the rate of revenue

growth. Where earlier projections assumed a gradual recovery from the substantial losses during the pandemic,

this report now assumes that changes in office use that began in the pandemic are long-lasting, a shift that has

major repercussions for San Francisco’s largest two tax revenues: business and property tax. With minimal

growth assumed in the City’s revenues and ever-growing costs, the structural deficit grows to over $1.2 billion

by FY 2027-28.

Expenditures Growth Projected to Outpace Growth in General Fund Revenues

Figure 18

City and County of San Francisco

FIVE-YEAR FINANCIAL PLAN

Fiscal Strategies

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In order to close this gap, especially in the long term, City leaders will need to consider major structural changes

that both constrain costs as well as grow the City’s revenue base. This kind of economic restructuring will take

experimentation, time, and some solutions may even require voter approval. Work is already underway among

City departments, leaders, and the broader business community to review and implement some strategies,

especially focused on the City’s downtown and economic core – some of which are highlighted in the Strategic

Initiatives section of this report.

The strategies outlined below are meant to offer a framework for budget changes, likely spending reductions, as

the City works to develop more refined and longer-term revenue, savings, and operational proposals that will

likely require multi-year planning and multi-stakeholder engagement.

Fiscal Strategies: Overview and Approach

Unlike the large and immediate budget gaps that followed the 2001 and 2008 recessions, the financial outlook in

the current projection reflects a set of much longer-term structural challenges facing the City in this post-

pandemic economic reality. Each year, the budget gap grows by about $200 to $300 million. Consequently, each

year the budget challenge is not addressed in an ongoing way, the problem exacerbates, stacking up to a $1.2

billion deficit by FY 2027-28.

Meanwhile, the risks of further losses in the City’s revenue base, whether driven by a recession, deeper

structural shifts in the City’s economy, or other macro-economic factors, are significant. These risks will need to

be carefully monitored and responsibly guarded against in order to minimize major impacts to critical City

services.

In the upcoming two-year budget cycle, initial ongoing changes – whether reductions in spending or leveraging

new, ongoing revenue sources – must be implemented as more significant and complex proposals are planned

to then take effect in future years. One-time solutions through the use of reserves, many consciously established

by the City during better times, should be used to bridge remaining gaps and the City’s rainy day reserves must

be maintained to manage even greater budget deficits should a recession occur.

Table 14 below provides a conceptual view of this approach with annual, ongoing adjustments of $200 – 250

million paired with one-time solutions to solve for the remaining forecasted shortfalls. This approach aims to

minimize service disruptions while recognizing the time required to implement larger, more complex solutions in

future years. Importantly, it maintains adequate reserves as a stop-gap for a recession or further weakening in

the local economy.

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Table 14: Fiscal Strategies Framework

In the following section, examples of initial budget-savings strategies, largely focused on managing expenditure

growth, are discussed.

Fiscal Strategies: Manage Employee Salary and Benefit Costs

The Five-Year outlook anticipates that, absent change, the rate of growth in employee salary and fringe benefit

costs will rise significantly during the coming five years, representing 34% of all projected expenditure growth,

the second largest driver of the growth in the City’s deficit and expenditure increases. In order to minimize

service reductions and impacts on the City’s workforce, these strategies assume that the City will take action to

constrain growth in employee costs throughout the five-year period, through approaches such as negotiation of

future labor contracts and the management of pension and health benefit costs.

Labor Costs: The Base Case assumes the implementation of previously negotiated labor agreements for

miscellaneous employees through FY 2023-24, with assumed cost-of-living adjustments in line with CPI through

FY 2027-28. The remaining police and firefighter employees are covered by labor contracts that expire at the

end of FY 2022-23. For these employees, the Base Case outlook assumes cost-of-living adjustments in line with

projected CPI commencing in FY 2023-24.

However, given the gap between revenue and expenditure growth, it is unlikely the City can afford these

increases without expenditure reductions beyond the departmental and citywide reductions discussed in these

fiscal strategies. Over the next five years, the City will need to set goals for labor contract agreements that

reduce costs relative to the projections assumed above.

Provisions in the adopted MOUs allows for negotiated wage increases to be delayed should the projected

shortfall for the upcoming fiscal year exceed a certain threshold. In the negotiated labor agreements for

miscellaneous employees, should the projected shortfall for the upcoming fiscal year exceed $300 million at the

time of the March Update to this report, the base wage adjustment can be delayed by six months.

Pension Costs: Employer contributions to the San Francisco Employees’ Retirement System (SFERS) peaked in FY

2020-21 after a series of changes had been fully amortized and further, due to significant investment returns.

The City, led by the Retirement Board, will need to continue to seek opportunities to skillfully invest - especially

Base Case Outlook ($ Millions) FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Total

Cumulative Projected Surplus/(Shortfall) (201) (528) (746) (992) (1,224) (3,691)

Proposed fiscal strategy - Annual ongoing solutions and limited one-time sources ($ Millions)

FY 23-24 ongoing solutions 201 201 201 201 201 1,005

FY 24-25 ongoing solutions 250 250 250 250 1,000

FY 25-26 ongoing solutions 250 250 250 750

FY 26-27 ongoing solutions - 250 250 500

FY 27-28 ongoing solutions 250 250

Total annual ongoing budget solutions 201 451 701 951 1,201 3,505

Remaining gap - (77) (45) (41) (23) (186)

One-time solutions 77 45 41 23 186

Adjusted Outlook - - - - - -

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during more volatile times – as well as implement responsible policies to reduce future liability and constrain

cost growth.

Health Benefits: Employer contributions for active and retiree health benefits are expected to grow much faster

than inflation over the next five years. Reducing this rate of growth is a top priority for the Health Service Board

and the City. The Health Service System (HSS) continues to explore innovative ways to make health care

affordable and sustainable for current and future members through value-driven decisions, programs, designs,

and services. In the coming years, HSS will continue to focus on quality, value-based payments and going to

market with health plans aligned with these strategies.

General Fund savings resulting from these strategies would result in ongoing cost reductions. These proposals

represent planning goals, and many of these solutions will require agreements with employee unions and health

care providers.

Fiscal Strategies: Citywide Expenditure Savings

Capital, Equipment, and Information Technology Spending: The City’s FY 2024-33 Capital Plan, set to be

published in early 2023, calls for an annual $30 million increase in the level of General Fund cash investment in

city-owned infrastructure. This $30 million annual rate of growth is included in the plan’s Base Case projected

costs. The current projection estimates a $626.0 million General Fund facilities backlog at the end of FY 2023-24,

thus the significant investment in capital funding assumed in the Base Case addresses and lessens this backlog

over the forecast period.

The City’s Information and Communication Technology (ICT) Plan that will be released in spring 2023 similarly

recommends an increase of $10 million in FY 2023-24 and annual increase of 10% for total ICT allocations. This

growth is also included in the City’s Base Case projection.

Ways in which savings could be realized related to the Capital, Equipment, and ICT Plans include:

• Reduce spending in portfolios below their recommended growth each year;

• Assume the Capital and ICT Plan General Fund support level grows at CPI rather than the recommended

levels in each year;

• Fully fund the Capital and ICT Plan in the first year, but at lower growth rates in the latter years of the

budget;

• Leverage alternative revenue sources to support capital, IT, and equipment needs, which could come

with a cost (such as debt), but would delay costs.

Managing the City’s Debt and Real Estate Portfolios: In recent years, the City has successfully pursued

refinancing and restructuring of existing debt obligations, resulting in lower annual debt service costs on General

Fund capital projects and real estate ventures. The projections in this report expect that the City will continue to

proactively manage and restructure planned debt to achieve additional savings, and leverage debt as a tool

where appropriate to fund capital work that would otherwise increase General Fund costs and contribute to the

deficit. In addition, the City has adopted a policy to limit the General Fund Certificates of Participation (COP)

debt program to 3.25% of aggregate discretionary revenue. However, this does not mean that the City must

fund projects using debt.

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A changing real estate market and remote work standards, while detrimental to City revenues, could

nonetheless provide the City with opportunities to renegotiate leases on City buildings, revise on-going cost

projections for new leases, or re-consider its space needs for City employees, generating savings in on-going real

estate costs. The City has adopted a Telecommuting Policy and Program, with approval, that allows employees

to arrange a hybrid work model of being in-office and remote. The City Administrator’s Office is currently

analyzing office space needs given this new policy and practice with forthcoming recommendations for City

leaders to consider.

Limit Non-Personnel Inflationary Costs: The Base Case of this plan assumes that departments will absorb

inflationary increases on many non-salary costs (such as spending on contracts or materials and supplies) in FY

2023-24, but that inflationary costs will contribute significantly to citywide costs for the last four years of the

projection. Given the projected deficits facing the City, these fiscal strategies assume that some level of this cost

escalation is absorbed by departments within existing budgets for most non-personnel costs in the final four

years of the five-year period. This strategy will likely require continual re-evaluation by City departments of

priority purchasing needs, finding opportunities for efficiencies, and a focus on effective purchasing practices –

or even reforms – to ensure the lowest possible price.

If changes such as these are made each year, they could result in ongoing savings from the projected deficits. To

the extent possible, the City should continue to make investments in capital and IT spending as it is an important

goal to ensure the resiliency of San Francisco’s infrastructure, but those needs must be balanced against the

City’s ability to fund them. To supplement the General Fund sources discussed above, the City will continue to

work to leverage alternative sources to support capital, IT, and equipment needs.

Fiscal Strategies: On-going Departmental Revenues and Savings Initiatives

Thanks to the use of one-time revenue sources and citywide saving strategies utilized in the recent budget years

to address the COVID-19 shortfalls and fiscal impacts, departments did not need to make significant cuts to their

budgets in the last few years. Given the current outlook, departments will now need to find ways to reduce their

projected spending or find new sources to support current levels of spending.

In December 2022, the Mayor instructed departments to reduce on-going General Fund support by 5% in FY

2023-24 and 8% in FY 2024-25. Departments were also instructed to prepare for the economic outlook to

worsen, and that further reductions may be requested. If departments meet the required budget targets of 5%

and 8%, ongoing, this would generate over $500 million in budget savings in the upcoming cycle, making a

significant dent in the five-year structural shortfall.

To achieve ongoing operational savings, departments have been instructed to:

• Identify alternative revenue sources;

• Evaluate and right-size core service level needs and consolidate contracts;

• Eliminate or reduce contracts and other costs for non-essential or discretionary services;

• Suspend programs and initiatives that are funded in the base budget, but have not yet started; and,

• Analyze and determine how staffing vacancies can be used for savings

While the goals set forth in the Mayor’s budget instructions and this plan are ambitious, the General Fund

budget reduction targets of 5 and 8% are significantly less than the requested departmental reductions in the

five years following the 2008 downturn, which ranged from 5% to 25% each year. These changes will

nonetheless require difficult decisions, prioritization, and tradeoffs.

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The strategy outlined above offers a framework for City departments and leaders to approach this difficult

financial outlook. Initial budget solutions that make lasting reductions in the City’s General Fund commitments

will be necessary as longer-term solutions are planned and in time, implemented. Additional strategies will be

required in a recession.

RECESSION PLANNING SCENARIO: SPRING RECESSION

Due to the difficulty of predicting recessions, the Base Case of this report does not anticipate an economic

contraction in the next five years. Despite the large deficits projected, overall General Fund tax revenues in the

Base Case grow year-over-year, albeit very slowly. However, a Bloomberg survey from December 2022 found

that 70% of professional economic forecasters anticipated a recession some time in calendar year 2023.

The biggest impact on the City’s budget deficits in a time of recession comes from reduced revenues and

increased employer pension contribution rates. The City’s revenues are affected by the overall business cycle;

the international, national, and regional economies; consumer confidence and spending; employment rates; and

travel and tourism. In addition to business cycle change, San Francisco’s economy is still recovering from the

COVID-19 pandemic, and the Base Case forecast already assumes medium to long-term structural change in the

local economy related to work-from-home. The bounds of this conceptual framework are summarized

previously in Table 2

Historically, projection variances follow the economic cycle, and revenues tend to outperform expectations in

times of expansion and underperform in times of recession. Actual revenues exceeded budgeted revenues by

over 6% in FY 2005-06, FY 2010-11, and FY 2018-19, years of rapid revenue growth. However, revenues were 2-

4% below budget in FY 2002-03, FY 2008-09, and FY 2019-20, years of sharp economic contraction. To illustrate

the effect of a hypothetical recession on San Francisco’s fiscal condition, this section describes a recession

scenario that assumes weakness in the California and San Francisco economies beginning in spring 2023.

Revenue

The recession scenario roughly models the lower righthand quadrant in the table above, where a cyclical

recession converges with deep structural change in San Francisco’s economy. This scenario results in immediate

revenue loss in all major local tax sources – property, business, hotel, sales, and transfer taxes – with near

recovery in sales and hotel tax by the last year of the forecast but lingering weakness in other sources relative to

the Base Case. Reductions in the City’s projected aggregate discretionary revenue would result in reduced

contributions to baselines and set-asides. The revenue loss from a recession beginning in late FY 2022-23 would

be approximately $953.4 million through FY 2027-28. Reductions to baselines total $167.4 million, resulting in an

estimated net impact of $786.0 million from FY 2022-23 through FY 2027-28. Figure 19 shows the difference

between Base Case and Worse Scenario revenue projections before General Fund savings from reduced baseline

contributions are considered.

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Base Case vs Worse Scenario, Selected Local Taxes

Figure 19

Pension Contributions

An economic recession will likely lead to pension system investment losses and related increases in employer

contribution rates. The recession scenario therefore assumes a return of -10.9% in FY 2022-23, which would

affect contribution rates for a five-year period beginning in FY 2024-25. The -10.9% return was one of the stress

testing scenarios provided to the Retirement Board by its actuary, Cheiron, in its July 1, 2021 actuarial report

dated January 2022. In this scenario, employer contribution rates would rise by approximately 8% in FY 2024-25

and by 28% in FY 2025-26. This estimate is intended to demonstrate sensitivity to a large negative return and

should not be relied upon for any other purpose.

The revenue losses described above would reduce required reserve deposits by $100.3 million and allow the City

to draw $380.3 million in reserves. Taken together, these changes in revenues and expenditures indicate that an

economic downturn beginning in late FY 2022-23 would result in a net remaining deficit of approximately $339.0

million over the five-year period, assuming policymakers chose to completely deplete economic reserves.

Table 15: Projected General Fund Shortfall in Recession Scenario ($ Millions)

FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28

Base Case Deficit Projection (200.8) (527.5) (745.6) (991.7) (1,224.1)

Updated Projection - Savings/(Cost)

Reduction in base case revenue available (203.9) (212.7) (216.9) (159.6) (82.0)

Reduction in mandatory baseline spending 31.0 34.7 39.5 33.2 17.1

Reduction in General Reserve deposits 20.7 15.1 21.3 21.7 21.4

Permissible withdrawal from reserves 154.2 127.4 98.8 - -

Increase employer retirement contribution - (5.9) (20.4) (28.1) (45.7)

Updated Deficit Projection (198.8) (568.9) (823.3) (1,124.4) (1,313.3)

Amount of New Fiscal Strategies Needed 2.0 (41.4) (77.7) (132.7) (89.2)

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San Francisco’s Charter requires that each year’s budget be balanced. Balancing the budget in each year with

this recession scenario would require an even greater combination of expenditure reductions and additional

revenues as compared to the fiscal strategies discussed earlier in this plan.

Existing Fiscal Strategies Not Sufficient in Recession Scenario

Under the recession scenario, the City’s cumulative deficit in the final two years of the plan would increase from

$991.7 million and $1,224.1 million in FY 2026-27 and FY 2027-28 to $1,124.4 million and $1,313.3 million. In

this scenario, the fiscal strategies offered in this report would not be sufficient to close the projected gaps

between revenues and expenditures. At a high level, the recession scenario would necessitate larger reductions

in expenditures than the Base Case.

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Citywide Long-Term Strategic Planning

San Francisco is committed to long-term planning to ensure the sustainable stewardship of public dollars. In

addition to the Five-Year Financial Plan, the City publishes the Citywide Ten-Year Capital Plan and Five-Year

Information and Communication Technology (ICT) Plan in order to identify and assess near- and long-term

capital and information technology needs. These plans also help policymakers prioritize how to program limited

city funds through a disciplined, coordinated planning process while allowing sufficient flexibility to address

critical needs as they arise. Together, these documents and planning processes represent the City’s commitment

toward long-term, strategic planning.

In March 2020, the COVID-19 pandemic ushered in stark economic changes and, in turn, new fiscal realities for

the City of San Francisco. The pandemic created new ongoing operational challenges for the City to respond to:

an urgent and all-encompassing public health crisis, immense challenges for the city’s small businesses, and new

hardships for its most vulnerable residents. But over the last three years, an infusion of state and federal

resources, as well new tax revenues, and strong pension fund returns allowed the City to fund both essential

services while also adding new programs to respond to pandemic-era needs. These revenues sources allowed

for financial stability in times of uncertainty.

Now, although the COVID-19 pandemic has ebbed, the City’s financial situation has drastically changed. Time-

limited federal sources have run out and the very structure of the City’s economic foundations are shifting with

what appears to be a permanent transition to hybrid work, driving down property and business tax revenues

that depend on the sustained presence and growth of office workers. Together, this loss of one-time Federal

funds, reductions in tax revenue projections, and escalating costs result in a $200.8 million General Fund deficit

for FY 2023-24 and a $527.5 million deficit for FY 2024-25, a combined two-year deficit of $728.3 million, which

grows to over $1 billion by the end of the five-year projection period.

San Francisco has been an exemplary leader in navigating the unprecedented COVID-19 public health crisis. The

collective efforts of City leaders and residents resulted in the lowest death rate of any major city in the country,

and high vaccination rates. As the City rises up from this pandemic, it must tackle both, the challenges that have

long plagued San Francisco and the new ones that have appeared in its aftermath, with the same resolve.

In alignment with long-standing financial planning practices and in light of a new economic reality, upcoming

budget investments will focus on realizing an equitable and vibrant economic recovery and future for San

Francisco.

With those goals in mind, the initiatives described below highlight City programs in the following priority areas:

1. Recovery that prioritizes Downtown and the surrounding area, as well as neighborhood business

corridors and small businesses

City and County of San Francisco

FIVE-YEAR FINANCIAL PLAN

Citywide Strategic Initiatives

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2. Public safety and improved street conditions for all communities to feel safe and welcomed in their

neighborhoods

3. Decreasing homelessness through housing and shelter

4. Building more housing to make San Francisco more affordable

5. Improving and building on systems of care that focus on the growing mental and behavioral health

needs of the City

6. Investing in the future of San Francisco

1. Recovery that prioritizes Downtown and the surrounding area, as well as neighborhood business

corridors and small businesses

San Francisco’s post-pandemic economic recovery is taking place during a time of continued economic

uncertainty, as remote work patterns continue to evolve and the prospect of a national recession looms. But

while some economic realities are beyond the City’s control, San Francisco has significant advantages as an

economic engine for the region, and as a global center of innovation. City departments are working to

implement strategies to bolster a city-wide recovery, with Downtown at its core, that build on San Francisco’s

strengths, while responding to changes in broader economic and work-place trends.

Investment in downtown and the surrounding area

San Francisco’s Downtown, South of Market, Union Square, Civic Center, Mis-Market, Yerba Buena, and Mission

Bay are the heart of the City and region’s economy. These areas continue to experience ongoing and significant

disruptions to the employee and tourist-based foot traffic that they relied on prior to the pandemic. The City

Core Recovery Fund, established in 2022, provides $10.5 million over 2 years to support initiatives aimed at

reestablishing economic vibrancy in these areas. Ongoing efforts include: funding new festivals; beautification,

improvement, and the addition of local artist displays to public spaces; partnering property owners with small

businesses and artists to fill vacant storefronts; and ad campaigns aimed at attracting both residents and visitors

to visit Downtown, as well as recruiting entrepreneurs looking to start new businesses. Additionally, in FY 2022-

23, the City budgeted $7.2 million to support enhanced street cleaning in the Tenderloin as an expansion of

Public Works’ current cleaning operations in the area. This funds a dedicated work crew that provides daily

daytime cleaning services during the week and maintains a healthy, safe, and clean environment that improves

quality of life and work conditions for residents and businesses in the Tenderloin area.

In addition to interim solutions to activate and draw foot traffic in the near term, the Office of Economic and

Workforce Development (OEWD) is leading the City’s efforts to retain existing businesses and attract new

businesses to San Francisco. As employers reduce their office-based footprints in response to hybrid work

schedules, San Francisco has an unprecedented availability of office space and with that, the ability to recruit

new industries that serve to diversify the City’s economic foundation and provide a new range of opportunities

for its residents. OEWD began an assessment in 2022 to better understand the economic ramifications of the

pandemic on San Francisco’s mix of industries, assess changes to its competitiveness in the new economic

context, and identify high-potential sectors to target for recruitment as the City pursues economic recovery and

improved economic resilience for the future. This assessment will create a series of recommendations for

strategies the City can employ to attract high-potential sectors and successfully recruit new businesses.

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Staffing the City’s workforce and restoring transit service

A key component to Downtown’s recovery is the restoration of services to its neighborhoods including transit,

maintenance, and public safety to maintain its inviting and accessible presence. To broadly achieve these

restoration goals, the City is working to counter high vacancy rates across departments by expediting and

streamlining hiring processes, and investing in the current workforce through negotiated wage increases and

various other programing. At the center of this effort is the HR Modernization Project, which is rolling out more

intuitive, user-friendly tools and processes to improve the City’s human resources system. The Department of

Human Resources is also upgrading the hiring process through the Digital Exam project to improve access and

flexibility of test takers and by shifting from paper to computer-based exams. The Digital Onboarding & e-

Personnel Files project will improve efficiency, consistency, and understanding for new hires. The Mayor also

funded a new city-wide team in the FY 2022-23 budget focused on hiring and contracting reforms to find ways

to further cut the red tape in the way of getting talented people employed by the City faster. This team will help

move modernizing projects forward and introduce legislative reforms needed to implement these changes.

Specific to transit, access to Downtown from other parts of the city will help bolster foot traffic for businesses

from both residents and visitors. Transit service went through dramatic changes in response to COVID-19, but

the San Francisco Municipal Transportation Agency (SFMTA) is now working to restore and expand services to

build back ridership to accelerate the City’s economic recovery and support workers returning to the office. In

addition, SFMTA, in partnership with OEWD, is hosting the CityDrive training program to provide opportunity to

jobseekers who may face barriers to employment and create career pathways by providing free training and

hands on support. CityDrive also provides transit jobseekers professional development and financial support

while obtaining a commercial driver’s license permit and a Department of Transportation medical examination.

SFMTA is also dedicated to increasing ridership by adding service where customers have provided feedback

about crowding and wait times, upgrading SFMTA shelters and platforms, and partnering with regional transit

agencies to serve as many riders and counties as possible. Improvements include bringing back the 1X California

to provide express service from Western neighborhoods to Downtown and partnering with Golden Gate Transit

to provide express service for riders who use the temporarily suspended 30X. The SFMTA is also moving forward

with a plan to increase transit shelter cleanings across the City by 50% — going from two days a week at all

locations to three. Boarding platforms will be cleaned five days a week, and the Department will invest in

refreshing shelters across the city after a full evaluation of their condition.

Bringing back tourism and business travel

Tourism contributes significantly to the City’s overall economy and job market. Before the COVID-19 pandemic,

San Francisco saw record high tourism levels in 2019 with over 26 million visitors and contributing more than

$10.3 billion to the local economy. This spending generated over $819 million in taxes and fees for the General

Fund and supported more than 86,000 jobs in the tourism industry. The COVID-19 pandemic sharply disrupted

the tourism market and has been responsible for a significant decline in the number of visitors and the

associated declines in revenue.

The City is working to restore tourism-related economic activity to pre-pandemic levels by both investing in its

tourism infrastructure and attracting business travelers as well as international, regional, and domestic visitors.

To the same end, San Francisco International Airport is partnering with international carriers to restore

passenger volume and the Tourism Improvement District (TID), created in 2009, was renewed in September

2022 for another 15 years with expanded assessment criteria to include short-term rental accommodations. The

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TID assesses hotels and other accommodations to fund sales, marketing, and promotional activities related to

tourism and special industry events designed to attract leisure travelers, conventions, meetings, and events.

Prior to the COVID-19 pandemic, conventions at the City-owned Moscone Center represented a special revenue

stream, annually drawing over one million convention attendees and exhibitors and accounting for 21 percent of

San Francisco’s travel and tourism industry. Between March 2020 and September 2021, this revenue stream was

cutoff as the Moscone Center transformed into the City’s temporary Emergency Operations Center to address

the COVID-19 pandemic. Since September 2021, the Moscone Center has seen the return of conventions to San

Francisco, with 34 conventions held in 2022, the largest of which was the September 2022 Dreamforce

conference with 40,000 in-person attendees. To continue attracting more conventions, the Moscone Center will

use increased revenues from the TID expansion. The Moscone Center also plans to leverage $250 million over 5

years for capital improvement projects. These combined efforts aim to ensure that San Francisco remains

competitive as a global destination for both business and leisure travel.

Future planning for downtown

In addition to responding to the current conditions, OEWD is also coordinating a city-wide recovery effort to

supporting the long-term economic recovery of Downtown and the surrounding area. This coordination comes

in response to new market conditions that impact the decisions of employees, visitors, and businesses to return

to downtown. In partnership with the SFMTA, the Department of Emergency Management (DEM), and Public

Works (DPW), OEWD is working to ensure that services critical to the success of Downtown are deployed in a

strategic and responsive manner. OEWD is also working with the Planning Department, Arts Commission and the

City Administrator’s Office to identify regulatory and administrative improvements as Downtown evolves to

meet new business needs. Part of this evolution shifts the economic context to include needs for Downtown

beyond work. As these ideas and strategies take shape, the City will remain focused on ensuring that both

Downtown and its surrounding neighborhoods preserve their roles as drivers of economic activity and jobs in

both the City and the region.

Support for small businesses

Since the onset of the pandemic, San Francisco has provided immediate and ongoing support for small

businesses, including investing more than $83 million in grants and loans to support over 4,800 small businesses.

This year an additional $10 million in direct grants and loans will be distributed to help small businesses launch,

stabilize, scale up, and adapt their business models to the changing conditions of ongoing recovery.

Along with direct funding, the City located new support services from the Office of Small Business in the Permit

Center. Thus, launching a Small Business Inspections Ambassadors Team to provide proactive outreach service

to those going through the permitting process, removing a burdensome requirement to create new architectural

drawings even when no construction is being done, and strengthening review and tracking of small business

applications under Proposition H - the City’s streamlined permitting process for small businesses.

Other ongoing efforts to reduce burdens on existing businesses include a newly DPW launched courtesy graffiti

abatement program for storefront and other private properties in neighborhood commercial corridors. The $4

million pilot program funds graffiti removal by professional Public Works crews or City contractors, reversing the

degraded look and feel of neighborhoods that graffiti brings, at zero cost to effected property and business

owners. The City also allocated $5 million in FY 2022-23 to support the enforcement of a new street vending

ordinance. Together, the two investments support legitimate entrepreneurial street vendors and disincentivizes

the resale of stolen goods, while additionally ensuring safety and accessibility of public rights-of-way.

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2. Public Safety and improved street conditions for all communities to feel safe and welcomed in their

neighborhoods

San Franciscans deserve to feel safe in their city, and the City is investing in plans to ramp up public safety

efforts and improve street conditions to aid the City’s economic recovery and ensure communities feel safe and

welcomed in their neighborhoods. While public safety includes enforcing laws and making arrests, it also means

deploying creative solutions that effectively and efficiently reduce community harms, and engaging with the

City’s diverse communities to build relationships, gather input, and collaborate to foster overall community

safety.

Over the last few years, San Francisco has had persistent police staffing shortage, similar to other urban regions

across the country. At a time of heightened retail theft and organized crime, gun-related violence, and an on-

going epidemic of drug use and drug sales, this has been a significant barrier. Increased investments in recruiting

efforts for the San Francisco Police Department aim to build back a more robust uniformed force over time,

while innovative, non-traditional public safety strategies will help ensure the appropriate responses to

challenges on the streets that require other types of resources and staffing.

Public safety staffing

The results of a March 2022 staffing analysis by the San Francisco Police Department (SFPD) indicate that the

Department has a significant staffing deficit across both sworn and non-sworn professional staff – 352 sworn

officers and 133 civilian positions below recommended levels based on call volume and workload and

concentrated heavily in Field Operations.

As San Francisco continues to recover from pandemic-related staffing shortages, and amid a nationwide trend of

declining police staffing and recruitment challenges, new investments in the SFPD include funding to hire up to

220 new police officers to fill officer vacancies. Entry-level salaries at the Department were also raised in 2022 to

increase competitiveness with other forces in the state and region. Investments have also been made in an

outside recruiting firm to professionalize recruitment operations.

In addition to combatting recruitment challenges, $10.5 million has been invested in retention bonuses to

prevent veteran officers from leaving the force, representing two percent salary bonuses when officers reach

years five years and fifteen years with the Department. The Department has also implemented a new Retention

Unit designed to help keep officers on the force, focusing on strategies to stay competitive with other

departments through training, equipment, and salaries, as well as using the existing Recruitment Unit to more

strategically advertise open positions.

Supporting healthy street conditions

In addition to traditional public safety resources such as police, San Francisco will continue to invest in

innovative programs that provide targeted alternatives to law enforcement.

Street Response Teams: Street Response teams were launched through an early pilot supported by Mental

Health SF and community members who wanted to see an alternative to police. The Street Response team pilots

focused on behavioral health crises, overdoses, and wellness concerns were launched in November 2020,

August 2021, and January 2022 respectively. The teams consist of community paramedics, clinicians and people

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with lived experience through partnerships between the Fire Department, the Department of Public Health, and

the Homelessness and Supportive Housing. Individuals sometimes need acute care at an emergency room, but a

larger percentage are transported to a non-emergency facility, or de-escalated and referred to ongoing care for

follow-up and treatment. Due to is work:

• Teams respond to as many as 16,000 calls per year, including over 8,800 behavioral health calls, 5,200

wellness calls, and 1,800 overdose calls annually

• The average response time (time of dispatch to time on scene) for a response teams in 2022 was 16

minute, 45 seconds.

• As of June 2022, all 800-B calls are now diverted to emergency medical services instead of police and

additional calls to 911 are in the process of being diverted to emergency medical services

In 2023, the teams are adapting to respond to behavioral health, wellness, and overdose crises, while also

providing additional clinical support beyond the emergency call to coordinate care for people in need. Further,

through coordination by the Department of Emergency Management, Street Response Teams are aligning

efforts with ongoing outreach and engagement to help people access critical services and housing. To that end,

Response Teams will partner with a community team launching in the first half of 2023.

Ambassador Programs: Multiple safety ambassador programs have been deployed to support a safe, consistent,

and intentional presence throughout Downtown and the surrounding area during the recovery process. All of

the ambassador programs have been well received by businesses and individuals, and the City is currently

exploring expansions for these programs through the budget process. OEWD supports some ambassador

programs through grants, in collaboration with different community stakeholders, investing over $40 million in

the Community Safety Ambassadors program since its launch in June 2021. Staffed by Urban Alchemy,

Community Safety Ambassadors are stationed around the Mid-Market area and work in coordination with other

City initiatives, including the Healthy Streets Operation Center, the new Street Crisis Response Teams, and

others to ensure awareness of and appropriate responses to challenges or issues related to cleanliness and

safety that may arise.

Building on this program’s success, a new Welcome Ambassadors program was implemented to create a

hospitable environment as visitors, commuters, and workers return to the City’s busiest corridors. Welcome

Ambassadors are stationed at key transit and tourist nodes such as Downtown BART stations, Union Square, the

Moscone Center, and along the Embarcadero. These programs provide a consistent and visible presence, as well

as proactive positive engagement and friendly assistance in wayfinding, making referrals or recommendations,

and coordinating with other City departments and community-based efforts to support positive street

conditions.

Retired Officers and Police Services Aides: In 2020, the SFPD began the Retired Police Community Ambassadors

Program, which aims to provide an extra layer of protection and visibility through the presence of unarmed,

former police officers in neighborhood commercial corridors. The City is also exploring the expansion of SFPD

Police Services Aides (PSAs) – civilian positions that provide supportive duties to police. PSAs allow sworn

officers to focus on responding to calls for services, investigating crimes, and conducting community policing

efforts like walking foot beats. PSAs allow for effective and efficient community harm reduction while engaging

with and building relationships with communities. SFPD currently employs approximately 220 aides and 20

community police services aide supervisors.

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Violence prevention and victims’ services

In addition to the efforts detailed above, violence prevention and victims’ services are key to the City’s public

safety strategy, policies, and investments. City’s efforts across these areas include:

Violence Reduction Initiative: The San Francisco Violence Reduction Initiative (VRI) is a collaborative project

developed by SFPD, in partnership with the University of Pennsylvania, the California Partnership for Safe

Communities, the Street Violence Intervention Program (SVIP), and Operation Genesis Inc. The goals of the VRI

are to reduce shootings and homicides, break the cycle of recidivism, and build trust between law enforcement

and communities impacted by violence. In June 2022, the City announced a $6 million grant awarded to the

SFPD from the California Board of State and Community Corrections. This grant allows the City to continue

supporting residents most at risk of committing violent offenses by meeting them where they are to prevent

crime from happening in the first place and by identifying individuals who are at the greatest risk of either

engaging in gun violence or falling victim to gun violence. The grant will continue funding VRI and support the

City’s efforts to prevent violent crime over the next three years.

AAPI Violence Prevention: From the onset of the COVID-19 pandemic began, reported hate crimes and

incidents against Asians and Pacific Islanders increased exponentially, including by 567% in 2021. Since then,

2022 data on prejudice-fueled incidents indicates a significant decrease in reported hate crimes against Asians,

with the SFPD reporting a total of 6 hate crimes against API targets for the year and a total of 36 hate crimes

citywide against any and all targets. The city’s overall response to anti-Asian violence highlighted the fact that

language and cultural barriers continue to chill crime-reporting by Asian crime victims. Moreover, services for

victims in areas such as trauma recovery and mental health services were much less accessible for non-English

speakers. Therefore, in June 2022, the City announced $500,000 in new funding to expand services for Asian

victims of crime. The investment increases services and capacity to serve Asian victims of crime who are limited

in their English proficiency.

While the SFPD responds in these situations to make arrests and hold people accountable, many in the

community also need mental health support and wraparound services, which can be difficult for those with

language barriers. This funding is key to providing victim-centered services, and will assist in providing

communities dedicated trauma recovery clinical services in Cantonese, training and technical assistance for

community-based providers, expanded treatment in Cantonese at community-based mental health service

providers, capacity building in community-based organizations to services, and increased senior escort services

citywide. For example, one prevention grant allows seniors to obtain training on how to use online banking --

this minimizes the need for seniors who receive public benefits through the mail to physically travel to a bank to

deposit or cash these benefits and carry large amounts of cash on their person.

The City is also working in collaboration between the District Attorney’s (DA) office, SFPD, Sheriff, City Attorney’s

office, and community-based organizations to establish a citywide protocol for any prejudice-fueled incidents

against members of the Asian and Pacific Islander (API) community. The objective is to ensure that any contact

by a possible victim of a prejudice-fueled crime, whether in community or to a law enforcement agency, will

elicit an immediate response that minimizes additional trauma to the victim, connects the victim to desired

services, and allows for clear communication between all the relevant entities. These entities are also working

together to advocate at the state level for resources so that the District Attorney’s office can have prosecutor(s)

who are able to have a dedicated caseload of potential prejudice-fueled crimes, which typically require an

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increased level of collaboration and investigation between investigators and prosecutors for an effective

outcome.

District Attorney’s Office Victim Services Division: The City offers a wide variety of services to support victims of

crime and specifically, the San Francisco District Attorney’s Office provides information and help with crisis

counseling, funeral arrangements, witness relocation, potential assistance with crime-related medical expenses

and attorney’s fees.

The Victim Services Division (VSD) of the San Francisco District Attorney’s Office strives to make the criminal

justice system humane and accessible by providing support and assistance to victims and their families in the

aftermath of a crime, during criminal prosecution, and after a verdict has been reached. Even if justice is served

in the courtroom, it does not always immediately change the way victims feel in their day-to-day lives

afterwards. The division provides victims with advocacy, streamlines the process for collecting restitution and

recouping compensation for financial losses when possible, and, in general, works tirelessly to support victims

regain control over their lives.

In September 2022, the office expanded support services within the VSD and added a new Vulnerable Victims

and Community Engagement Unit to provide specialized services for vulnerable victims. The new unit within the

Victim Services Division will ensure that all vulnerable and underserved victims will have a trained advocate that

facilitates communication and coordination with other government agencies and victim advocacy organizations,

links victims with local resources, provides case updates, and offers support during court hearings and

testimony. The VSD now better serves crime victims and their families, while ensuring the rights of victims are

protected. Investments in VSD will allow the division to focus mental health, provide specialized services for

survivors of domestic violence and human trafficking, as those with immigration issues. The team includes

Spanish, Cantonese, and Mandarin speakers, with additional language capacity provided by video translation

services in 41 languages.

3. Decreasing homelessness through housing and shelter

San Francisco provides shelter and housing to over 14,000 homeless and formerly homeless people across the

community every night, and saw a 3.5% decrease in overall homelessness and a 15% decrease in unsheltered

homelessness between 2019 and 2022. Despite this progress, the most recent Point in Time Count identified

7,754 people experiencing homelessness on a given night. The Department of Homelessness and Supportive

Housing (HSH) calculates that for every one person who exits homelessness, four more enter homelessness.

Therefore, preventing and ending homelessness in San Francisco continues to be one of the City’s most

important and most challenging priorities.

Over the last two years, the City set and achieved bold goals as part of the Mayor’s Homelessness Recovery Plan

announced in July 2020. The plan, in part, aimed to decrease homelessness by bringing more shelter and

housing resources online, with the support of federal, state and local funding. These investments scale up the

City’s Homeless Response System through extensive outreach, a coordinated system of entry, temporary shelter

and crisis interventions, housing, prevention and problem-solving approaches. The City almost doubled the goal

of 1,500 units of permanent supportive housing, creating 2,918 units between 2020 and 2022, representing the

greatest increase in permanent supportive housing (PSH) in 20 years. In that same time period, the City created

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4,679 prevention, shelter, and housing placements while also strengthening outreach and emergency services

for people on the streets.

Leveraging Homekey funds to house formerly homeless residents

A big contributor to meeting the goals of the Homelessness Recovery plan was the City’s investment in HomeKey

projects, in partnership with the state’s HomeKey program. Administered by the California Department of

Housing and Community Development (HCD), Homekey equips state, regional, and local public entities to

develop a wide range of housing types. Homekey builds on the success of Project Roomkey, which is a statewide

effort to sustain and rapidly expand housing for persons experiencing homelessness or at risk of becoming

homeless. The state has released two rounds of Homekey funding that allowed the City to make nearly 800 units

across 6 sites available to formerly homeless residents. The sites include: Hotel Diva, a 130-unit hotel that

provides PSH for people experiencing chronic homelessness; the Granada Hotel, a 232-unit Single Room

Occupancy building that includes low-income senior residents, who are at-risk of potential displacement due to

unrestricted rents; 1321 Mission Street, formerly known as the Panoramic, which consists of 40 multi-bedroom

units for families and 120 units for adults with histories of homelessness; the 25-room Eula Hotel that offers PSH

for transitional age youth (TAY); a 52-room motel, formerly known as the Mission Inn, that provides affordable

units with onsite social services to help TAY tenants gain and maintain housing and stability; and City Gardens

with 200 multi-bedroom units, which range from two-five bedrooms, that is the first exclusively family serving

PSH building purchased through the acquisition process.

Implementation of the Mayor’s Homelessness Recovery plan investments and additional investments continue

to create shelter, housing, and prevention resources to address homelessness in San Francisco. This work will be

guided by a city-wide strategic plan on homelessness to be released in spring of 2023.

Adding and innovating shelter

While the City lost almost 70 percent of its shelter beds during the COVID-19 pandemic, it has now reactivated

or created new beds to exceed pre-COVID capacity, with a current capacity of over 3,000 beds. As shelter in San

Francisco expands, the way shelter is viewed is diversifying. While congregate shelters will always be part of the

Homelessness Response System, COVID-19 era learnings and feedback from people experiencing homelessness

have informed the strategy for new shelter concepts.

Two recent examples of this include the Baldwin SAFE Navigation Center and 711 Post. The converted the

Baldwin Hotel, which was underutilized due to small rooms without their own bathrooms, to approximately 180

units of non-congregate shelter for adults. 711 Post is a former youth hostel located in the lower Nob Hill

neighborhood that the City master leased in partnership with the non-profit provider Urban Alchemy. This site

now provides temporary, 123 semi-congregate shelter units (single, double, and quad units) for adults

experiencing homelessness. The City also continues to operate alternative shelter through its Safe Sleep sites in

the Mission and Bayview districts, and a 70-unit cabin site providing temporary non-congregate shelter to adults

experiencing homelessness at 33 Gough. The City continues to seek effective shelter solutions, and recently

added new funding to cover capital costs for approximately 70 cabins at a new site in the Mission to address

street homelessness.

Creating new housing for people exiting homelessness

Shelter alone will not end homelessness. In order to create flow through the system, people need support to

exit to housing. In addition to the units already created through the Mayor’s Homelessness Recovery Plan,

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almost 3,000 new housing placements will be created through a combination of local, state, and federal funds.

This includes new development and acquisition of over 800 units for youth and families, as well as over 2,000

additional Flexible Housing Pool subsidies and placements for adults, youth, and families and an additional 70

placements for families through the Housing Ladder program, which are placements for people who no longer

need PSH, but continue to need some level of rental assistance.

Investing equitably in the permanent supportive housing portfolio

To ensure equity across the portfolio, which now supports over 11,000 units of PSH, the City also invested $67.4

million in total, primarily aimed at legacy housing sites to provide support to front-line service workers,

increased levels of case management services consistent with newer programs, and improvement to the capital

infrastructure across the portfolio. This investment includes increased wages for frontline workers (such as

janitors and desk clerks) who operate buildings in the PSH portfolio. It also includes investments in wages to

bring PSH and Transitional housing case manager wages up to a base of $28/hour. The funding for service

enhancement aims to increase supportive services to achieve closer to a 1:25 case manager-to-client ratio for

adults in PSH and a 1:20 case manager-to-client ratio for families and youth in PSH. The investments in

infrastructure are for one-time capital repairs and Wi-Fi installation in legacy PSH sites.

Focusing on prevention

Prevention helps people identify possible pathways to resolve their current housing crisis without needing

ongoing shelter or a housing resource from the Homeless Response System. A prevention resolution is achieved

when a household has found a safe, indoor solution to their housing crisis. Prevention services in San Francisco

include problem-solving conversations to help identify real-time solutions to a housing crisis, housing location

assistance to help households with income but without an immediate housing plan locate a place to rent,

reunification, mediation, and conflict resolution, and flexible financial resources to cover specific costs that will

assist households to stay in a safe, indoor place. In the last two years, over 12,300 households were served

through the COVID-19 Rent Relief Program. This past year, the Department of Homelessness and Supportive

Housing prevented homelessness for 900 households. As the program continues to serve people with financial

assistance, legal support, it will also look to offer services that can help with housing stability and homelessness

prevention, including financial counseling and developing housing stability plans.

4. Building more housing to make San Francisco more affordable

The development of new housing across all income levels is key to countering the lack of housing affordability in

San Francisco. It’s also central to making progress on other major citywide goals from supporting workforce

development, to making San Francisco a vibrant home for families, to preventing homelessness. Key

investments in the City’s housing programs are highlighted below.

Creating a housing plan for the next decade

State law requires the updating of the Housing Element of San Francisco’s General Plan every eight years. The

plan helps define San Francisco’s priorities for housing solutions, guiding decisions and resource allocation for

creating housing and providing housing services. The Housing Element includes an analysis of housing needs in

the city and policies that address those needs. The update is required to also include policies that provide equal

housing opportunities to city residents, assist in housing development, preserve units at-risk of conversion from

affordable to market rate, and improve and conserve existing housing stock. In addition to developing the plan

to accommodate 82,000 units of housing by 2031, the City’s Planning Department has also created an

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implementation roadmap that includes extensive rezoning, legislation to reform local approval processes,

feasibility and constraints analyses, community outreach processes, ongoing programmatic monitoring, and

fulfilment of other required Housing Element programs. The City will turn to Housing Element implementation in

2023 and develop further details on next steps, working across agencies and in collaboration with the State.

Bringing more affordable housing online, faster

Housing Accelerator Funding: The City has been advancing its affordable housing pipeline by leveraging all

available funding sources to bring more housing online, faster. Most recently, San Francisco secured nearly $348

million in state funding from the California Housing Accelerator that will allow the City to bring more than 800

units of affordable housing online, many of which will target specific high-needs populations. This funding will

help support eight shovel-ready projects, including three HOPE SF projects that seek to rebuild San Francisco’s

severely distressed public housing sites, while increasing affordable housing and ownership opportunities. This

will include Hunters View Phase III, Sunnydale Block 3B, and Potrero Block B projects. Altogether, the financing

will bring 341 replacement public housing units and new affordable units online. In addition to the units, the

financing for the Sunnydale Block 3B will also support 3,400 square feet of community serving retail for its

residents. This project also received $11 million as part of the FY 2022-23 budget in funding for the Sunnydale

Commercial and Community Center. The California Housing Accelerator funding will also support 471 additional

units that will serve several populations, including previously unhoused veterans and seniors, people with

developmental disabilities, and previously unhoused families.

Operating Subsidies: Local Operating Subsidy Program (LOSP) is a partnership between the Mayor’s Office of

Housing and Community Development (MOHCD), the Department of Homelessness and Supportive Housing

(HSH), and nonprofit housing operators. As the City acquires and develops affordable housing sites, portions of

these sites are reserved as supportive housing units for individuals exiting homelessness. The City provides a

subsidy to housing operators to cover the cost of this housing while also providing supportive services to these

formerly homeless individuals to assist them in permanently exiting homelessness through LOSP. The City is

projected to operate 2,143 of these units as part of LOSP in FY 2023-24, growing to 2,276 in FY 2024-25 as more

sites are acquired. The City’s investment in this program will total approximately $48.3 million in FY 2023-24 and

$54.3 million in FY 2024-25. The most recent budget also made significant one-time investments in additional

operating subsidies, including $4 million to increase the number of units subsidized under the existing Senior

Operating Subsidies program. This funding is estimated to subsidize 28 units over a 15-year period. The FY 2022-

23 budget also added $10 million in funding for emergency repairs and capital improvements identified in

existing non-profit affordable housing projects’ capital needs assessments. Emergency repairs are work needed

to mitigate immediate threats to the health, safety, and/or quality of life of the tenants. In addition, this

maintenance is crucial to the long-term habitability of the infrastructure.

Preventing displacement

As part of a comprehensive housing strategy, several efforts focus specifically on preventing displacement and

increasing housing stability for all San Franciscans, while also preserving the City’s cultural foundation. When

San Franciscans are displaced from their homes, particularly low-income and longtime San Franciscans, they are

left to contend with finding housing in one of the most expensive rental markets in the country. They typically

move far away from their workplaces and social networks, or into a situation with even more severe housing

problems, such as overcrowding, unsafe or unsanitary conditions, and severe rent burden. Displacement can

also have a direct and long-lasting detrimental impact on a household’s mental and financial wellbeing. To that

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end, the Small Sites Program supports local nonprofit sponsors with acquisition and preservation loans,

stabilizing at-risk communities by converting rent-controlled properties to permanently affordable housing. A

program redesign was underway in FY 2021-22, culminating in revised underwriting guidelines and a new

scoring rubric, finalized in FY 2022-23. To date, these acquisition and preservation programs have deployed over

$217 million in funding to preserve 50 projects with 39 commercial spaces, and 519 residential units for low and

moderate-income households.

In addition to these programs, MOHCD funds community-based organizations (CBOs) to deliver essential anti-

displacement services to residents, such as eviction legal assistance, including implementation of the Tenant

Right to Counsel, tenants’ rights counseling, education and outreach, tenant-landlord mediation and technical

assistance to housing providers, emergency rental assistance and ongoing deep and shallow tenant-based

subsidies. In response to the devastating impact that COVID-19 has had on San Francisco renters’ ability to pay

their rent, MOHCD partnered with more than a dozen community-based organizations to launch the San

Francisco Emergency Rental Assistance Program (SF ERAP) – a large-scale, low-barrier and community-based

program. Additionally, the City partnered with the State of California Department of Housing and Community

Development (HCD) for its COVID-19 Rent Relief Program, which operated from March 2021 to March 2022.

Combined, the local and state programs distributed more than $200 million to more than 20,000 predominately

extremely and very low-income tenant households of color. Of these, SF ERAP served approximately 5,000

households with more than $30 million.

5. Improving and building on systems of care that focus on the growing mental and behavioral health

needs of the City

San Francisco continues to establish innovative practices and build on successes in caring for people

experiencing homelessness, mental illness, and substance use disorder. The City’s unprecedented investment in

behavioral health services enables the implementation of key Mental Health SF strategies and programs with a

focus on people experiencing homelessness, who also have behavioral health challenges. In recent years, the

Department of Public Health (DPH) has led new initiatives, including responding to the COVID-19 pandemic,

while maintaining core programs and services. In support of all this work, the City has also invested in

infrastructure building within the department to strengthen its workforce, emergency preparedness and

response, high-quality prevention, care, and treatment services.

Behavioral and mental health

Mental Health SF: The City continues to invest in the implementation of key aspects of Mental Health SF

(MHSF), legislation which passed in December 2019, and the provision of services for people experiencing

homelessness through the Our City, Our Home fund. MHSF legislated a comprehensive overhaul of San

Francisco’s mental health system, and provides mental health care to underserved San Franciscans, such as

those who have serious mental illness or substance use disorder and lack insurance, or who are experiencing

homelessness. These programs have already improved access to behavioral health services in the City and will

continue to expand. In the recently adopted FY 2022-23 and FY 2023-24 budget, $58.5 million was allocated for

assertive outreach programs, including three Street Overdose Response teams and seven Street Crisis Response

teams. These efforts are preventing overdoses in the City and helping connect most vulnerable residents to

treatments.

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Expanding the City’s behavioral health treatment bed capacity remains a priority, and $57.5 million was included

in the recent budget for the operation of new-acquired bed facilities. This funding will support 360 beds, greatly

improving access to these services for those who need them most. In 2022, the City also increased its capacity

by approximately 190 beds across the continuum to support San Franciscans with mental and behavioral health

challenges.

9-8-8 Suicide Prevention Hotline: Other recent budget investments include $6.3 million to expand

comprehensive crisis care, including the implementation of a nationwide 9-8-8 suicide prevention hotline. This

funding will expand the Crisis Line to evening and nighttime coverage and expand the DPH’s bereavement

program.

Improving the City’s processes for initiating and coordinating conservatorships is another aspect of improving

mental health services. The City had an estimated 13,000 cases of individuals being placed on involuntary

psychiatric holds in FY 2020-21, and about five percent of those cases are individuals who have had multiple

detentions in the past. These individuals need more timely support, follow-up, and care coordination in order to

successfully be treated, and the recent budget includes $3.7 million over the two budget years and 11 new

positions to accomplish this. These staff will improve communication across the City’s health care providers to

coordinate care for these individuals who experience multiple involuntary holds.

Residential System of Care: DPH will also create a new Residential System of Care unit under Behavioral Health

Services that will oversee the placement of clients, support discharge and patient flow for the SFHN clients,

develop new beds and facilities, track data on available beds and manage contracts to ensure optimal care is

delivered. Targeted improvements to outpatient services for specific vulnerable populations, such as older

adults and children, are also funded in the FY 2022-23 and FY 2023-24 budget. These will include $1.4 million

over the budget years to develop a Children’s Center of Excellence, expanding outpatient therapy, psychiatry,

and specialty clinics for children, youth, and families. These improvements also include $1.7 million over the

budget years to add staff in four clinics that will specialize in mental health services for adults and older adults.

Reducing overdose deaths and increasing connections to services

Drug overdoses are a public health crisis. San Francisco has the highest overdose rate among large California

counties. While every demographic group has been affected, profound disparities exist among Black/African

American San Franciscans in opioid death rate. San Francisco has made progress in reducing overdose deaths

since the start of the COVID-19 pandemic in 2020 which marked the highest accidental overdose rate locally.

Innovative practices such as opening a first-of-its-kind Drug Sobering Center and rapid overdose response teams

(see Street Response section) have contributed to a reduction in fatal overdoses, but this remains a high priority

for the City.

As such, San Francisco continues to make significant investment in connecting people to treatment and

resources, and save lives. In 2022, the City and County of San Francisco launched the Office of Coordinated Care,

which assigns case managers to people who are disconnected from behavioral health services, or who are

making transitions in care from one setting to another. Once fully expanded, the Office of Coordinate Care will

manage the cases of approximately 4,000 individuals annually who have mental health and/or substance use

disorders, and who have been historically underserved by the healthcare system because of trauma,

homelessness, racism, and other social determinants of health.

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Tenderloin Center (the Center): The Center was part of the San Francisco’s Tenderloin Emergency Initiative, and

planned as a temporary site to reduce overdose deaths and increase connections to services, as well as to

collect data for future sites and services. The purpose of the Tenderloin Center was to create a safe, welcoming

location for people who suffer from substance use disorder in the Tenderloin where they can access hygiene

resources and social space as well as to provide a single location for those who are ready to access city health

and human services to link to those programs easily and quickly. Food, water, hygiene supplies, dignity services,

and social space was available at the Center. The Center also included staff and referrals into programs including

behavioral health care and treatment, temporary winter shelter, transitional housing, homeward bound,

sobering/substance use treatment, food coordination, vocational support, therapy and mentoring, child and

family care. The Center closed in December 2022 and lessons learned from its temporary operations will inform

the opening of new sites in 2023, serving this and other high needs population.

Managing COVID-19

Since early in the COVID-19 pandemic, the case rate in San Francisco has been consistently lower than the case

rates in California and the United States as a whole. While loss of life caused by COVID-19 on San Francisco is

tragic, the hard work and dedication of front-line workers, City employees, partnerships with businesses and

non-profits, and sustained efforts by San Franciscans to follow health guidelines, has protected communities

from even greater losses. Department of Public Health (DPH) has led the City’s direct COVID-19 response

services. Recognizing that the pandemic remains ongoing at a less acute level than in the past, ongoing funding

ensures the continued provision of testing and vaccination services, isolation and quarantine, and community

public health outreach services.

The recently adopted budget includes $12.1 million over the budget years to capitalize on the lessons learned

during the COVID-19 pandemic, adding staff to the Public Health Emergency Preparedness and Response team,

expanding the Population Health Division’s epidemiological capacity, and preparing San Francisco for future

public health emergencies.

6. Investing in the future of San Francisco

In addition to responding to the urgent and immediate needs of residents, longer-term plans are essential to

ensuring San Francisco remains a vibrant, thriving, and resilient City for decades to come. This means making

meaningful investments in San Francisco’s children and families and also in the City’s physical infrastructure.

Children, Families, and Early Education

Children and Family Recovery Plan (Recovery Plan): In May 2021, the Department of Children, Youth and Their

Families (DCYF) led the development of a recovery plan with the intention of elevating and addressing the

urgent needs of the City’s children, young adults, and families who have all been impacted by the pandemic. This

plan allowed leaders and the community to work together to fill gaps in recovery approaches and offer a unified

vision of needs and strategies. The Children and Family Recovery Plan has offered three main goals:

1. Create a 3-5-year, City-wide strategy for children and family pandemic recovery to align resources, steer

implementation, and coordinate advocacy efforts

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2. Capitalize on a collaborative and barrier-busting approach to COVID response that brings together multi-

sector partners and collective strategy

3. Leverage relationships between children, family, and youth serving organizations across the City

This plan presents a list of strategies that respond directly to the recovery needs as voiced by children, youth,

and families. It includes goals of improving the coordination of cross-departmental projects and information, as

well as, increasing collaboration between City departments and community members. It is grounded in a

commitment to equity and in the lived experiences of San Franciscans.

The City has begun the implementation of many of these initiatives, with an investment of $50.7 million over

two years in the recently adopted two-year budget. The funding supports more than 550 families per year who

earn less than 200% of the Area Median Income (AMI) and with children aged 0 to 3, as well as, 150 transition-

aged young adults per year who earn less than 85% of the State Median Income (SMI) and with children aged 0

to 5 with child care vouchers. The investment also adds an additional staff member at each of the 26 Family

Resource Centers in the City to provide parenting support, training, and classes to parents of children aged 0 to

5 that is expected to benefit up to 5,000 families per year from across the City. Furthermore, the City has

invested in improving the Citywide communication, referral, and navigation of children’s services to create a

Service Inventory, a database of children’s programs, making it easier for families to learn about and sign up for

existing services and provide navigators with more extensive training about the wide array of existing City

programs. Finally, the City continues to expand its work with CBOs and City programs, such as UCSF hospital

clinicians, through a $5 million investment to provide trained clinical support to children, their families, and CBO

staff.

Early Educator Pay: The City has also recently made significant investments in its early educator workforce. Such

investments include the Early Educators Pay Raise Initiative, also known as the Workforce Compensation

Initiative, the first early childhood educator wage initiative of its kind in the nation. Through funding from the

2018 Commercial Rent Tax, this initiative provides wage raises, increases benefits, and aims to improve working

conditions, and support educational attainment for San Francisco's workforce of over 2,000 City-funded early

educators. The investment will enable educators to be paid more fairly for their crucial work, and also help

attract new, quality educators to the field. By 2025, San Francisco intends to support a living wage of no less

than $28 an hour for all early educators in City-funded programs.

The Early Educators Pay Raise Initiative builds on the success of the former Office of Early Care and Education’s

Compensation and Retention Educator Stipend (CARES 2.0) program, which has provided $30 million in stipends

to early educators working at City-funded Family Child Care programs and centers since 2019. These programs

serve over 6,500 children ages 0-5 every year and will expand eligibility for City-subsidized enrollment in high-

quality Early Childhood Education programs serving children ages birth to 5, bringing greater opportunity and

affordability to working and middle-class families.

Infrastructure and Resiliency

The City’s long-term planning also includes the long-term sustainability of the its capital assets and resiliency. In

the face of everyday wear-and-tear, ever-present seismic risks, and the threats of climate change, these

strategies and investments are crucial for a vibrant future of San Francisco.

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Ten-year Capital Plan: Developed by the Office of Resilience and Capital Planning (ORCP) and the Capital

Planning Committee, the 10-year Capital Plan lays ahead a plan for the next decade of infrastructure

development, construction, and maintenance. This Plan gathers input from Citywide stakeholders, resulting in a

road map for investments in San Francisco’s streets, facilities, utilities, parks, waterfront, and transportation

systems. The latest plan, set to be published in Spring 2023, will cover FY 2023-24 to FY 2032-33. It will also set

out the City’s plans for issuing General Obligation (GO) Bonds to finance capital enhancements with long useful

lives and high upfront costs. Priority areas for GO bond financing include public health, affordable housing,

transportation, waterfront safety and climate change, earthquake safety & emergency response, and Parks &

Open Space.

As the guiding document for City infrastructure investments, the Ten-year Capital Plan will recommend funding

for eight Service Areas: Affordable Housing, Economic and Neighborhood Development, General Government,

Health and Human Services, Infrastructure and Streets, Public Safety, Recreation, Culture, and Education, and

Transportation. Each of these areas include several types of capital projects, such as renewal programs,

enhancement projects, deferred projects, and emerging needs. Together, these projects allow the City to create

a built environment that will be fit for the future of San Francisco.

Climate Action Plan: San Francisco, like cities around the world, is faced with the threat of a growing climate

emergencies. In an effort to alleviate short-term impacts and plan for the future, The City adopted its initial

Climate Action Plan in 2004 and has led the way in local climate action, environmental justice, and launching

innovative community programs and outreach campaigns for residents and businesses. The City has achieved

emissions reductions, driven primarily by cleaner electricity supply, improved energy codes, and city-wide

energy efficiency. This progress has not just reduced emissions, but has also come with other important

benefits, such as reduced air pollution and dampening of other environmental stressors. San Francisco aims to

further reduce emissions by 61% below 1990 levels by 2030 and reach net-zero emissions by 2040. In tandem

with Citywide strategies, the Department of Environment continues its efforts toward equity-centered solutions.

These include recent investments to increase inclusive outreach and engagement with the community by

working with organizations to assist in decarbonizing buildings and create strategies for improving the health of

the local ecosystem. The healthy ecosystems work is focused on urban greening outreach and education with a

prioritization of projects in neighborhoods that have been underserved and identified as being at greater risk of

climate change impacts.

Sustainable City Planning: The San Francisco Eco-District program endeavors to amplify sustainability

performance and co-benefits through neighborhood-scale projects. The Sustainable City Team works with

stakeholders, partner agencies, developers, and utilities to develop policies and programs that help accelerate

the City goals and requirements. The Sustainable City Team coordinates on green building policy and studies

that address improving the efficiency and sustainability of the City's new and existing building stock.

Waterfront and Seawall Safety: To defend San Francisco from current and future flood risk, the Port of San

Francisco leads the Embarcadero Seawall Program, a citywide effort to create a more sustainable and resilient

waterfront. Part of the Port's Waterfront Resilience Program, the Embarcadero Seawall Program provides the

tools to address current and future risks over time. The Port and other City partner agencies are developing a

locally-endorsed Waterfront Adaptation Strategy, which will identify a preferred approach to adapting the

waterfront to flood hazards. Adaptation Strategies are a combination of construction and policy efforts to

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address the San Francisco waterfront’s unique combination of earthquake and flood risks in the short and long

term.

Green Purchasing: Under the Precautionary Purchasing Ordinance, City departments are required to buy green

commodities. The Department of the Environment works with other City departments to prioritize targeted

categories of products, and creates lists of green products and green purchasing specifications. This List includes

vendors, cost issues, and criteria for over 1,000 safer, more environmentally friendly products. This work helps

City departments comply with City green purchasing mandates, and helps local businesses gain recognition

through the SF Green Business Program.

Conclusion

The Five-Year Financial Plan informs some of San Francisco’s most important fiscal decisions for years to come,

guided by Mayor Breed’s goals for the City. Long-term planning enables the City government to set to respond

to the day-to-day issues that arise as well as the unexpected crises that lie ahead. Looking ahead to the next five

years, equity and resiliency will be the guiding values as the City charts a robust, long-term recovery from the

devastating impacts of the COVID-19 pandemic and changed economic realities that have come in its aftermath.

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Appendices

Other Long-Range Financial Planning

Major Department Issues and Goals

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In addition to this document, which provides a high-level look at projected revenues and expenditures in the

next five years, the City has additional citywide long-term planning processes, including reports specifically

focused on investments in capital projects and information and communication technology. Outlined below are

additional long-term financial liabilities that extend beyond the scope of the five-year outlook of this report.

Further, the Ten-Year Capital Plan and Five-Year Information and Communication Technology Plan inform the

Five-Year Financial Plan Base Case, and the Five-Year Financial Plan fiscal strategies inform the development of

the funding for each of these two plans.

LONG-TERM LIABILITIES

While this report focuses on the financial outlook of the City over the next five fiscal years, the City has financial

obligations that extend decades into the future, such as its pension liability, the cost of providing health care to

retirees and their dependents (OPEB, or Other Post-Employment Benefits), and capital and deferred

maintenance.

Pension Liability

Employer contribution rates to the City’s retirement system (SFERS) have changed significantly over the past

decade, particularly the employer portion, which increased from 6.6% of payroll in FY 2005-06 to 22.6% in FY

2020-21, representing employer contributions of $126.5 million and $739.3 million, respectively. This plan

anticipates contribution rates decline from their FY 2020-21 peak as exceptional investment returns of 35.8% in

that year and the cost of retroactive supplemental COLAs and other demographic and financial assumption

changes are fully amortized. Net liability is highly sensitive to year over year changes in the market value of the

retirement system’s assets. According to estimates presented by the system’s actuary, Cheiron, in September

2022, total pension contribution rates are projected to decrease 40% over the next decade, as illustrated in

Figure 20 below.

Note that the rate estimates in this section vary from those presented in the base case discussion above as they

are based in different assumptions about future supplemental COLA increases, prepayment discounts, and

future wage increases. Projections are highly sensitive to actuarial assumptions, most notably investment

returns, and fluctuations in these factors will need to be carefully monitored to effectively manage this long-

term liability.

City and County of San Francisco

FIVE-YEAR FINANCIAL PLAN

Other Long-Range Financial Planning

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Retirement Contribution Rates, FY 2022-23 through FY 2031-32

(Source: Cheiron)

Figure 20

Other Post-Employment Benefits (OPEB) Liability

The City also carries a significant unfunded OPEB liability, predominantly due to a retiree health benefit in place

prior to recent voter changes. For retirees hired before January 2009, the City guaranteed the full cost of health

benefits for retirees after five years of City service. The estimated actuarial liability measured on June 30, 2020,

is $3.8 billion, according to the most recent valuation report (December 2021).

Voters have adopted several significant changes to these benefits in the past decade and a half, including

creation of a new lower-cost benefit plan for new employees, establishment of a trust to prefund OPEB, and

requirements for both employees and the City to contribute to this fund. As result, projections indicate that the

percent of liabilities that are covered by the trust will gradually increase over time, from 0.4% as of July 2012 to

35% by FY 2030-31, reaching full funding by 2050. Achievement of full funding has been pushed further out in

more recent valuations given mortality improvements and other actuarial updates.

As with all long-term projections, these incorporate assumptions regarding events far into the future, including

the rate of investment returns, the size of the workforce, wage increases, and healthcare cost trends. The most

significant cost driver is medical inflation, and to the extent the City can control future inflationary increases,

future costs will be lower than projected. However, if medical inflation exceeds projections by 1% per year

compared to assumptions, the trust will likely never be fully funded.

The City’s ability to achieve full funding will depend heavily on the investment returns of the Trust and employee

demographics, among other factors, and will need to be monitored in carefully in future years.

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Capital and Deferred Maintenance

A strong economy and the support of the Mayor, Board of Supervisors, and citizens of San Francisco gave rise to

historic levels of capital investment in the years leading up to 2020. Since then, the COVID-19 crisis has led to

shortfalls in the Pay-as-you-go program. The funding levels shown in Figure 21 below seek to restore a healthy

level of funding for capital. Even at recommended levels a funding gap still remains for deferred facilities and

other capital needs ORCP in General Fund departments over the next 10 years. These funding levels will be

supplemented by Critical Repairs COPs programmed into the Capital Plan.

Pay-as-you-go Program Proposed Funding Level by Expenditure Type

Figure 21

Current projections estimate a facilities backlog of $626.0 million for General Fund facilities at the end of FY

2023-24 (not including buildings and sites for Recreation and Parks and Streets). As shown in Figure 22 below, at

currently proposed funding levels (including the Critical Repairs COPs), this backlog is expected to reduce to

$480.0 million by FY 2032-33. The backlog is projected to start decreasing in FY 2027-28.

Pay-as-you-go Program Impact of Facility Renewal Funding Level on Facilities Backlog

Figure 22

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