High Spending Has San Francisco in Dire Budget Crunch

Published January 17, 2010

With San Francisco spending more than $8,000 a year per resident—more than in Denver, New York, and Philadelphia—and more than the entire Idaho state government spends ($6.5 billion annually), the city’s fiscal problems keep getting worse.

The city is grappling with a $522 million budget deficit. Middle-income earners have all but disappeared. On the municipal transportation system, service routes are being shuttered and fares are rising. The city’s public employee pay and pension costs are exploding. Commercial and apartment rents are dropping dramatically. The homelessness problem is getting worse. Businesses are quitting town. Unemployment is rising.

The situation has become so desperate that San Francisco is going after the Catholic Church and Office Depot for money.

Church Contests Transfer Taxes
In December the city declared it had determined the Roman Catholic Archdiocese of San Francisco owes $14.4 million in taxes on 2008 property “transfers.” The Archdiocese disagrees. City officials also announced they had determined Office Depot overcharged the city by close to $6 million for paper clips, staples, and other office supplies. Office Depot denied the charge.

Supervisor John Avalos, chairman of the City’s Board of Supervisors’ budget committee, stated San Francisco is looking at piling more tax increases on its property owners and raising business taxes and utility taxes, creating a new citywide parcel tax, and hiking the vehicle license fee and the city’s the sales tax.

Michael Antonini, a member of the San Francisco Republican Central Committee, noted Avalos’s proposals would be added to already burdensome policies.

“San Francisco has an extraordinary tax—its own payroll tax. No other Bay Area city has a payroll tax,” he said. And he noted San Francisco also has “a very high, business-crippling minimum wage” and forces businesses to pay for sick leave regardless of their size.

“Raising more taxes is only going to drive more businesses out of San Francisco,” Antonini said. “It is not good public policy. It is unfortunate because we have a great downtown area here, the most concentrated area outside of Manhattan where everything is in one place—civic institutions, entertainment, sports, all these things. Companies should be climbing over themselves to get here, but we drive them away with our politics.”

‘Worst Run City’
To dampen San Franciscans’ spirits even more, a recent article in the San Francisco Weekly magazine lambasted the City by the Bay as “The Worst Run Big City in the U.S.” The widely circulated piece pointed to signs San Francisco is being crushed by expensive city employee retirement packages and left-wing nonprofit organizations that secure hundreds of millions of dollars of city homeless maintenance grants without accountability or performance requirements.

Richard Rodriquez, a San Francisco resident, Harper’s magazine contributing editor, and essayist for NewsHour with Jim Lehrer, says San Francisco is dying.

“The city’s last major newspaper is dying because San Francisco is dying, and the city is without a sense of itself,” Rodriquez said. “That idea rhymes with the troubles outlined in the San Francisco Weekly piece but from a totally different direction.”

Defender: Worries ‘Overblown’
Gabriel Metcalf, executive director of the San Francisco Planning and Urban Research Association, which is closely allied with San Francisco Mayor Gavin Newsom (D), believes reports of the tax and budget problems facing the city are overblown.

“San Francisco has a lot of problems, and the city government could be much more efficient than it is, but it is the same with every big city in America,” he said. “The answer to the $500 million deficit in San Francisco is we will become more efficient, we will raise more money in new taxes and fees, and we will offer reduced public services in one form or another. This is a little bit of a normal thing, that when there is an economic downturn, there is less money, and everybody cuts back.

“The whole thing is overblown,” he added. “Yes, there is a projected budget deficit, and yes, we will make cuts till [the budget] is balanced, and life will go on.”

Metcalf believes the city’s leaders understand the problems and are working to solve them.

“Everybody understands we need a healthy economy and that we are competing with other regions. That’s basic economics 101,” he said. “New taxes might have people freaking out. I am just saying we should have a sense of perspective: that basically this is still a community that has the ability to generate wealth, there is a tax base, there is an employment base, that is intact.”

Hoping for Condo Conversions
Antonini thinks more condo conversions—and the resulting transfer tax fees—will help balance the city’s budget and lay the foundation for a more responsible and moderate voting public.

“In the 1960s, 1970s, and 1980s we lost a lot of our middle-income, particularly blue-collar union workers, who voted moderately,” Antonini said. “And in the void, leftist activists took over. . . . But encouraging condo conversions will help. The left does not want condos; condo voters are the wrong sort of voters, who are financially invested in the city’s welfare.”

Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.