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San Francisco faces large price range deficit that might power layoffs

After closing two massive budget gaps this year, San Francisco will face a new deficit of $ 653.2 million over the next two fiscal years as COVID-19 soars and a severe economic shutdown continues to plague the city’s finances .

To fill that void, Mayor London Breed plans to instruct departments on Wednesday to cut costs. This could include painful layoffs and service cuts that have largely been avoided so far.

The city’s budget bureau projects a $ 411.1 million hole for the next fiscal year, which begins in July, and a $ 242.1 million deficit the following year. City officials were hoping for a stronger economic recovery at this point in the pandemic, but sales, hotel and corporate taxes have been lower than expected, while costs associated with the pandemic and expected staff increases are driving up spending.

“We need to be clear about the options if we do not address this deficit, and unfortunately every option is on the table,” said Jeff Cretan, the mayor’s spokesman. “The mayor still has the priority not to fire anyone. But we know that this deficit will require a lot of work and sacrifice and difficult choices. “

Despite the looming cuts, Cretan said the mayor’s budget priorities remain the same: helping small businesses, providing basic services, and helping the homeless and the mentally ill.

The recent virus surge has led the state and city to revert to more extensive business shutdowns. While its biggest budget hit can be attributed to falling tax revenues, the city’s economic troubles also stem from the multi-million dollar hikes promised to most city workers.

Over the summer, Breed urged the 35 San Francisco unions, representing 37,000 city workers, to postpone the increases to avoid layoffs and service cuts. In preparing the budget, the city was confident that negotiations with the unions would postpone an increase, but only police and firefighters agreed.

In August, the Board of Supervisors agreed to use $ 36.9 million in business tax reserves to fund 3% increases for the majority of unions that year. Now the city is ready for a further 3% increase from July 1st and a half percent increase on January 1st, 2022.

Increases could be delayed due to a treaty provision to postpone increases for six months if the budget deficit exceeds $ 200 million, which happened this year. However, this depends on an update of the budget in March.

At the time, the mayor sharply criticized the board’s decision to dive into the city’s reserves.

The supervisor Catherine Stefani – the only supervisor to vote against the Board’s budget proposal in the autumn – accused its colleagues of having adopted a spending plan based on reserves. She said the new budget projections were a “self-inflicted wound”.

“I am very disappointed that we got to this point,” she said in a statement. “Instead of protecting our existing services, my colleagues spent beyond our means. … We have to make painful decisions to get back on track. “

Meanwhile, COVID-19 costs are expected to pull $ 100 million out of the general fund this fiscal year. The largest costs include testing, food security programs, and running the command center in Moscone. While officials expect COVID-19 costs to fall over the next year, they won’t go away entirely. Since the federal CARES law has been used up by the end of 2020, the city plans to spend roughly the same amount in the next fiscal year.

Another unsolved issue that could have budget implications is the city’s homeless hotel program. The Ministry of Homelessness and Supportive Housing is finalizing a program that will accommodate more than 2,300 homeless people in hotels. While the city expects FEMA to reimburse the majority of the expenses – which range from $ 15 million to $ 18 million per month – City Controller Ben Rosenfield has warned that funding could run out in the short term.

The Board of Supervisors plans to vote Tuesday on laws that could lead the city to fund the program longer than currently planned.

The new deficit arises after hard-fought battles to close the deficits this year. The city closed a $ 1.5 billion hole for this fiscal year and next in October and expects to use funds from the previous fiscal year to fill another $ 116 million gap that is better than expected ended. This included revenue from a public health ministry settlement and more property taxes. The rest of the deficit was addressed by streamlining the processes in the departments.

To cope with the crisis, the city has already started reducing its budget stabilization reserves and plans to use the full amount – up to $ 500 million – over the next three years. The deficit expects about $ 100 million to be used by mid-2022 from Proposition I, a voter-approved tax hike on property sales worth more than $ 10 million, but less the next year.

Supervisor Dean Preston proposed a bill last week that will bring in more than $ 11 million in Prop. I finance this financial year for rent relief and affordable housing. If the proposal is adopted, the deficit would increase by an additional $ 11 million.

Kretan said “any decision we make about funding other programs” will affect the ability to meet the mayor’s budget priorities.

The new deficit brings more uncertainty for the struggling city authorities. The San Francisco Municipal Transportation Agency, which lost 95% of its Muni tariffs, has a deficit of at least $ 68 million this fiscal year and potentially $ 168 million in the next fiscal year. The agency could lay off more than 20% of its employees and further restrict the service.

The San Francisco Chamber of Commerce sent a letter to the Board of Supervisors on Friday asking them to prioritize funding for Muni, which is vital for businesses and key workers.

“We are seeing a devastating deficit for MTA and Muni,” said Cretan. “Our transport is the definition of a basic, essential service in our city. If we lose that, it will hinder our economic recovery. It will affect our ability to move workers. As we make decisions, we need to think about the bigger picture and what it means to get this city back on its feet and moving forward. “

Theresa Rutherford, a nursing assistant who works at Laguna Honda and is vice president of SEIU 1021, which represents more than 17,000 city workers, said helping frontline workers is inseparable from the economic recovery.

“Without our input, without our work, without us making the sacrifice and sitting on the line to show up for work and take care of the city, whether it has a deficit or not, the city won’t thrive, it so will not be able to pull yourself out of the pandemic and it will only be in a worse situation, “Rutherford said. “Workers are basically some of the key resources the city needs to invest in to get back on its feet.”

Chronicle author Trisha Thadani contributed to this report.

Mallory Moench is a contributor to the San Francisco Chronicle. Email: mallory.moench@sfchronicle.com Twitter: @mallorymoench

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