Hard lessons learned from San Francisco

San Francisco has been home to some of the most powerful politicians on the public stage: Gov. Gavin Newsom, former supervisor turned mayor; Vice President Kamala Harris, former San Francisco district attorney; former mayor Sen. Dianne Feinstein; and former Speaker of the House Nancy Pelosi, who has represented the city for 36 years. So it’s not for lack of influence that the once-beloved City by the Bay has turned into a cautionary tale for American voters.

Like California, Bay Area cities are facing a budget crisis — San Francisco chief among them. The city’s annual budget is approximately $14 billion. The recent budget update from the San Francisco Controller’s Office forecasts the budget shortfall for the coming fiscal year will grow to a whopping $291 million. 

And that’s not all. The Controller’s report estimates a $779.8 million total deficit for the upcoming two fiscal years, and a staggering $1.3 billion deficit by FY 2027-28.  

Factors accounting for the growing deficits include ever-increasing city personnel costs (salaries and benefits); companies going remote or leaving the city altogether, decimating tax revenues; and — no surprise — undisciplined spending on programs to address San Francisco’s increasingly severe homelessness crisis. 

Current salary and benefit costs for city employees amount to over $6 billion annually, and spending is expected to increase by a total of $768.5 million over the next five years. In the city’s Five-Year Financial Plan released in January, the Controller’s Office explained that growth in salary and benefits for city employees “has escalated significantly over recent years” and is “the second largest expenditure driver of the escalating deficit” behind citywide operating costs. 

In addition, city leaders — who for decades coasted along on the tech boom and better economic times — now find that the city’s pension investment performance continues to fall short of expectations. That means San Francisco will bear a significant increase in its pension funding burden. 

And, when it comes to spending on homelessness, the Controller’s Office admits that San Francisco’s Department of Homelessness and Supportive Housing is “currently relying on one-time State funds to operate many of its shelters.” These funds will expire in the next few years, leaving the city on the hook for the $24 million set to be added to the city’s deficit if current shelter capacity is maintained. 

Meanwhile, the decision by so many San Francisco companies to shift to remote work or leave San Francisco entirely is ravaging the city’s tax base. The Controller foresees an all-time high office vacancy rate of 33 percent by 2025-26, up from just four percent in 2020. The latest figures show San Francisco’s population at its lowest in over a decade. 

On top of that, retailers have been closing their San Francisco locations in droves, citing rampant crime, homelessness, and public drug use, which threaten employees’ safety and deter patrons. The city’s famous Union Square has lost 17 retailers since 2020. Nordstrom called it quits earlier this month. These closures gut jobs for San Franciscans and the city’s GDP. 

It’s no secret how San Francisco got here: City leaders’ lenient policies on crime, vagrancy and drugs have destroyed the once world-class city. City officials’ strict and shortsighted Covid policies drove the final stake through its heart.

In an attempt to stop the bleeding, Mayor Breed has proposed tax breaks for businesses that relocate to San Francisco, but the Board of Supervisors would need to approve these incentives. 

To her credit, Breed has also called for budget cuts of 5 to 8 percent across all departments — in addition to 5 percent cuts she announced in December. However, Breed’s small departmental budget cuts will not necessarily result in a total budget reduction of 5 to 8 percent, and is not sustainable in the long term due in part to obligations that cannot be cut or reduced, such as debt service costs. 

While Breed’s proposed budget cuts encourage some delayed hiring and spending, they don’t require San Francisco officials to seriously reevaluate their priorities or long-term financial difficulties. If city leaders fail to face reality, San Francisco’s corporate real estate freefall, deepening pension crisis, and reckless growth in programs that perpetuate the city’s problems will continue to drive the city deeper into despair. 

The rest of the nation should heed the warning that is the spectacle of San Francisco: You get what you vote for.