Mayor Breed Releases Her Budget Today. What Does That Mean for SF?

It’s budget season for San Francisco’s government. You probably have experience with a personal budget—you track how much money you’re bringing in from work, measure that against your expenses, and then see what you have left to save, spend on a night out, or maybe splurge on a family vacation. It’s Adult 101.

Now imagine you need to allocate over $14 billion dollars, pay 30,000 city employee salaries, and ensure the safety, health, and prosperity of over 800,000 people. That’s approximately what San Francisco’s budget covers. With a city budget that large and with so many stakeholders, things get infinitely more complicated. And since most people don’t have the time or patience to sit through hours-long budget proposal meetings for every city department, the budget process is almost a complete mystery to the average San Franciscan.

San Francisco’s budget funds countless city services and initiatives, from the airport all the way down to the small street teams working with unhoused people. Every year, city departments and elected officials fight over how to spend that money. While the average San Franciscan may not completely understand how the city’s budget process works, organizations that rely on city funding do—and they exploit it for political purposes. 

So who decides how that money is spent? Since San Francisco’s budget determines how the city is spending your tax money, it’s important to understand how the budget process works. Let’s dig in.

Where Does Money For the Budget Come From?

San Francisco’s budget is essentially a list of spending priorities for the next year. Our elected officials decide what they want to spend a set amount of money on, what programs or services to fund, and where they need to trim spending. 

The money for the city budget comes from a combination of taxes (think property tax, business tax, sales tax), revenue from state and federal sources, and interest and investment income. Some departments, like SFMTA or the Port of San Francisco generate revenue by charging for their services—your Muni fare helps fund SFMTA, for example.

San Francisco’s budget for the 2023-2024 fiscal year was $14.6 billion. That’s a lot of money—San Francisco spends about four times as much per resident as other large American cities. But most of San Francisco’s budget has already been assigned to specific departments and programs, and the city doesn’t have as much discretionary revenue as many people assume. This chart provides a handy breakdown:

Source: Mission Local

City departments like the Port of San Francisco, the Public Utilities Commission, and SFMTA are Enterprise Departments—they determine their own budgets. While those budgets are approved by the Mayor and Board of Supervisors, that money can’t go to anything except those departments (this amounted to about $7.8 billion last year). Enterprise Departments earn their own revenues, often by charging for services—i.e. SFMTA charges for bus and train rides, and those revenues flow back into their departments. Then, a set amount of non-discretionary revenue in the budget comes from state and federal funds—that money is designated for programs like CalWorks and CalFresh ($2.3 billion last year). And over the years, San Francisco voters have set aside mandated funding that goes to certain services, like parks, street trees, and libraries ($2.1 billion last year). That money can’t be touched either, and these set-asides keep growing every year. Last year, it made up about 30 percent of the General Fund.

So despite a gargantuan, $14.6 billion budget, San Francisco’s elected officials are really fighting over how to distribute just a fraction of that money. Last year, the discretionary revenue that wasn’t already assigned amounted to about $2.3 billion.

Who Decides How the Money in the Budget is Spent?

The budget process is mainly driven by the Mayor of San Francisco—they can make increases or cuts to the budget proposals that each city department submits to them. For example, the San Francisco Fire Department may submit a budget proposal to the Mayor, who then decides some programs need to be trimmed out. The mayor presents their proposed budget to the Board of Supervisors by June 1, the board makes updates and finalizes the budget in July, and the mayor ultimately signs the final budget. 

Importantly, the Board of Supervisors doesn’t have the power to increase the budget. When the mayor presents their budget to the board, they can only cut departmental budgets, not add more money. But San Francisco's supervisors still want to engage in some good old-fashioned pork barrel politicking, so they’ve developed something called the “add-back” process.

After the budget is presented to the public, there’s a brief window of time where supervisors get inundated with requests from nonprofit organizations in their districts to “add back” some of the money they cut from the departments for specific projects or organizations. These add-backs don’t make up a large percentage of the budget, but they totaled about $31 million for the last fiscal year. This process isn’t public, and most people don’t even know it’s happening, so it doesn’t benefit anyone but a handful of insiders who rely on city funding.

District 3 Supervisor Aaron Peskin at secured a $50,000 add-back to pay for an event coordinator for Noodlefest in 2022.

Sounds convoluted? It is. Even a little bit corrupt? That too. We wish good neighborhood work didn’t have to be funded like this, but the Board of Supervisors has an incentive to keep the budget process the way it is. Add-backs don’t make sense from a fiscal or organizational perspective, but they’re a great way for elected officials to strengthen relationships with powerful city contractors. A few hundred thousand dollars to the right organizations each year, and legislators can get the political backing they need when they run for office in the future. In an ideal world, the strength of a candidate’s platform and support from voters would replace these back-door dealings.

I Heard There Might Be Budget Cuts This Year?

There’s no way around it, the budget outlook for San Francisco right now is grim. The city is staring down a $799 million deficit over the next two years—that means the city is outspending its revenues. In the 2024-25 fiscal year, San Francisco is expected to spend $245 million more than it takes in, and $554 million more than it makes in the 2025-26 fiscal year. Since San Francisco is legally required by the state of California to pass a balanced budget (revenue needs to equal spending), that means elected officials are going to have to make some difficult decisions.

Source: KQED

In years like this, facing budget deficits, elected officials can balance the budget either by digging into “rainy day” reserve funds, or by budget cuts to city services, programs, and staff. San Francisco has a history of natural disasters, so officials generally want to save reserve funds for the next earthquake or fire. That leaves budget cuts to cover a deficit.

Late last year, Mayor London Breed asked city departments to propose 10 percent cuts to their department budgets over the next two years, with an additional five percent contingency reduction available if deeper cuts are needed. After years of ever-increasing city budgets fueled by the tech boom, the fiscal situation San Francisco finds itself in today is nearly unbelievable.

But San Francisco’s current deficit is a direct result of those boom years. The city overspent on programs and services when new businesses and workers flocked here, counting on the growth to last long into the future. San Francisco was completely unprepared for the economic downturn caused by the COVID-19 pandemic, and new work-from-home policies that meant employers didn’t need large offices downtown anymore. That, combined with increasing costs of city employee salaries and benefits, and San Francisco’s budget has a hole large enough to fit Twin Peaks.

It’s been a vicious economic cycle for San Francisco for the past few years. Empty offices mean fewer workers in San Francisco, which means less money spent on local businesses for lunch, after work shopping and activities, which means more local businesses closing, which means fewer reasons for people to visit San Francisco, and on and on and on. All that leads to less revenue for the city, which means the city has less money to spend in the budget.

Sounds Bad. What’s the Best Way to Deal With Budget Cuts?

There’s no “good” way to handle budget cuts. But at this point, cuts are almost inevitable. The heads of every city department and the Board of Supervisors will have to deal with the cuts that are made, try to be as efficient as possible, and ride the downturn out. It’s going to be painful, but city officials can use this as an opportunity to be better prepared in the future.

The upcoming budget cuts mean it’s likely that city personnel will get trimmed. That’s not going to be popular, but San Francisco has about 34,000 city employees for around 800,000 residents. That’s one employee for every 24 residents. For comparison, San Diego has about 12,000 city employees for just under 1.4 million residents—one employee for every 115 residents. Most city employees are performing important services, but San Francisco should not need over four times as many employees per resident as San Diego in order to be a well-functioning city.

Trimming city staff doesn’t mean sacrificing basics like street cleanliness, public transportation, and public safety. These are vital city services, and they need to be preserved as much as possible in the budget to ensure San Francisco remains attractive to businesses looking to start up here. Budget cuts need to be made thoughtfully, keeping essential employees, programs, and services. Cuts should focus on “nice-to-have” programs that were added recently, and combining similar programs to eliminate redundancies. 

Ultimately, if San Francisco wants to develop sustainable growth and recovery, the city’s elected officials need to plan for the long-term and think big-picture. That means reworking the city’s business tax structure to make San Francisco more attractive for employers (in a real way, not the half-measures of the current proposal). San Francisco’s budget is incredibly dependent on a handful of large companies—the city needs to create a fairer, wider tax base so the city isn’t hamstrung if a few employers relocate or if office spaces typically occupied by tech companies remain vacant. With departures of dozens of companies, the city is collecting much less tax revenue now than it did pre-pandemic. 

After years of sustained, rapid economic growth, San Francisco is forced to deal with a shrinking budget for the first time in over a decade. How our elected officials navigate the cuts is going to determine San Francisco’s path for the future.