In fiscal year (FY) 2016, the City and County of San Francisco’s budget increased by $650 million, to $9.6 billion. In FY 2017, expenditures will rise by another $135 million, to roughly $9.7 billion.
The budget reflects approximately $35 million in San Francisco Board of Supervisor cuts from Mayor Edwin Lee’s proposed spending. The Board also tinkered with funding related to housing, HIV prevention, and services for seniors and children, including early childhood education. In response, $25 million was added back by the Mayor.
Municipal expenditures have increased almost every year since FY 2009, when the budget was $6.6 billion. According to Michelle Allersma, director of budget and analysis for the Office of the Controller, the City is economically healthier than it was during the Great Recession. “Our revenues are growing. Office and commercial vacancies are very low. Business, hotel, property and other taxes revenues have increased,” she said.
Allersma said the City’s budgeting process has improved since passage of Measure A, the San Francisco Budget Reform Charter Amendment, in 2009. The ballot measure requires a two-year spending plan, a five-year financial strategy, and set deadlines for adoption of labor agreements. “Measure A really laid the groundwork to improve reserves and debt service policies,” said Allersma. In FY 2009, the City held $39.6 million in reserves; in FY 2015 it had reached $326.1 million.
“At the national level, we’ve been in a recovery since 2009, the longest economic expansion in over a century,” Allersma said. “Growth has begun to slow in some areas. The two-year budget reflects our assumption of continued moderate growth in the economy.”
According to Allersma, the City has had to cope with cost hikes. “Pension contributions and retiree health costs have increased rapidly over the past ten years. We’re seeing inflation in construction costs too. There’s only a limited amount of equipment and labor. If everyone wants the same cranes and the same construction workers, the price for them goes up really fast,” said Allersma.
Allersma also pointed-out that over the past several years San Francisco voters have approved a number of ballot measures to increase funding for housing, transportation and children’s services without identifying new revenue sources to pay for these expenses.
According to U.S. Census Bureau estimates, San Francisco’s population increased by 7.4 percent between 2010 and 2015, from 805,000 to 865,000 residents. The City’s budget jumped by 35 percent over the same period. Allersma insisted that population growth, higher in-flows of workers and visitors, and greater numbers of older residents motivated the City to spend more on services. She said the City has been particularly pressed to add more public transportation capacity, address affordable housing and homelessness, maintain the City’s infrastructure, and increase park and library services. Allersma added that the City is engaged in a five-year public safety hiring process, employing more police officers and firefighters.
Allersma said it’s difficult to determine where the City should make budget cuts. Governmental accounting rules require that certain revenue sources be dedicated to particular purposes. Fees charged utility and airport customers must be deployed to support associated services. “Under the City’s Charter, the only person who can grow the size of the budget is the Mayor. The Supervisors and agencies examining the budget can move things around, as long as the total amount appropriated does not increase,” said Allersma.
Allersma said it’s impossible to plan capital work to coincide with downturns, when construction and other prices might fall, because such declines are unpredictable. The City does reduce capital spending to preserve direct services in down years and funds discretionary projects in up years.
The City engages in a 10-year capital planning process that involves the Mayor, Board of Supervisors, Controller, and municipal departments, considering factors such as seismic needs, health, safety, and legal requirements. Some capital improvements are discretionary; others are not. The latter included renovation of Zuckerberg San Francisco General Hospital; all California hospitals have had to be rebuilt to meet state seismic requirements.
Municipal expenditures can be influenced by federal action. In 2007, the City launched Healthy San Francisco (HSF), an affordable healthcare program. The federal Affordable Care Act (ACA) was adopted in 2010, with legislative provisions implemented in stages until 2015. According to Alice Kurniadi, manager of the Office of Managed Care of the San Francisco Health Network, DPH’s delivery system, after ACA took effect the number of HSF enrollees dropped from 60,000 to about 15,000 people. Rachael Kagan, DPH director of communications, said the decrease was caused by ACA-induced expansion of Medi-Cal and increased availability of private insurance.
Kagan said that the drop in HSF participants hasn’t triggered a similar reduction in the program’s budget. “HSF is now providing some subsidies, based on income, for individuals who cannot afford the premiums for insurance that they are eligible to purchase through the Covered California exchange. In addition, DPH is also a healthcare provider, with two hospitals, Zuckerberg San Francisco General Hospital and Trauma Center and Laguna Honda Hospital and Rehabilitation Center, and over 15 primary health care centers. Since we’ve added so many Medi-Cal patients, we now have more people getting care. This may actually make DPH’s costs higher,” said Kagan.
According to Kurniadi, some people covered by Healthy SF are homeless, but haven’t yet established City residency, or are undocumented immigrants who are ineligible for Medi-Cal. “We’re very committed to making sure that we are here as an option for people. We don’t imagine any changes or reductions in services. A lot of the structural costs remain because we want to maintain a good level of service for members,” said Kurniadi. The Department of Public Health’s FY 2016 budget is $24.9 million more than its FY 2015 allocation.
“Our budget will be about $267 million in fiscal year 2016-2017, up from $242 million in fiscal year 2015-2016,” said Sam Dodge, Department of Homelessness and Supportive Housing (DHSH) deputy director. “The rise in minimum wage for our workforce is one of the reasons our costs are increasing. We’re also expanding the amount of money for shelters, transitional housing, and drop-in services, from $39 million to $47 million. This includes the Navigation Centers at 25th Street and 12th Street. We’ve made a $7 million investment in supportive housing, which is up from $111 million last year to $118 million this year,” said Dodge.
Dodge said increased DHSH spending is the result of a new approach, in which the department wants to transform the lives of individuals who are homeless or vulnerable to losing housing. “The best approach for encampments is to lead with social services and help. We want to offer all kind of services people may need, whether it’s medical treatment, including mental health treatment, or shelter and housing,” said Dodge.
Not all of DHSH’s funding comes from the City. “We plan to add three new buildings for housing, and hopefully a fourth, all with federal grants. That should provide hundreds of additional housing units. The reason that this is happening is the federal government has really added a lot of competition to their annual grants for homeless services. We’ve been able to win those bonus programs. The federal government has also done a huge push on veteran homelessness. With this effort, we hope to identify more veterans who are homeless and guide them to services and housing. The U.S. Department of Housing and Urban Development will be providing rental vouchers, and the Veteran’s Administration will be providing more social services,” said Dodge.
Dodge believes that with more local, state, and federal support, DHSH can vastly expand new interventions and opportunities to get people off the street. “Often with homelessness, our successes disappear but our challenges persist. This new investment that we’re making is not just a matter of cost savings. It is about peoples’ lives. We want people to really be able to come into their own when given a supportive chance,” said Dodge.