MBO Presentation 040826

CITY AND COUNTY OF SAN FRANCISCO Five-Year Financial Plan March 2026 Update FY 2026-27 through FY 2029-30 Board of Supervisors Budget & Finance Committee | April 8, 2026 Deficit Overview — General Fund Projected Shortfalls, FY 2026-27 through FY 2029-30 FY 2026-27 $168.5M Annual Shortfall ? $127.8M vs. Dec 2025 FY 2027-28 $474.3M Annual Shortfall ? $166.0M vs. Dec 2025 FY 2028-29 $741.7M Annual Shortfall ? $167.6M vs. Dec 2025 FY 2029-30 $1.09B Annual Shortfall ? $79.9M vs. Dec 2025 Two-Year Deficit (FY 2026-28) $642.8M ? $293.8M improvement vs. December 2025 forecast H.R.1 Federal Cuts — 2-Year Impact $306.3M ~48% of the total two-year shortfall Year 1 Revenue Forecast Improvements vs. December 2025 +$115M Business Tax (FY 2026-27) Prop M (Nov 2024) timing effects shift revenue from FY 2025-26 into FY 2026-27; actual filings within ~1% of projections +$17.3M Hotel & Sales Tax (FY 2026-27) Hotel and sales tax strength partially offsetting property tax weakness in FY 2026-27 +$44.3M Real Property Transfer Tax Reset in post-pandemic commercial real estate values driving growth over the full 5-year period +$149.1M Fund Balance (FY 2025-26) $89.4M from Six-Month Report + $59.7M additional current-year tax revenue; distributed across FY 2027-28 and FY 2028-29 +$29.5M Public Health Revenue Increased patient census at ZSFG & Laguna Honda; expanded billable encounters in Whole Person Care and Primary Care Other Major Cost Pressures — Cost Increases & Downward Revenue Pressures COST INCREASES DOWNWARD REVENUE PRESSURES Salaries & Benefits -$205.7M in FY26-27 Rising fixed labor costs from negotiated CBAs; Police/Fire contracts still outstanding Retirement Contributions Partially offset Lower employer contributions partially offset costs; 7.2% return assumed, actual YTD 8.45% Health Insurance 9.5% Health Rates are projected to increase by 9.5%, which is higher than previous projections. Citywide Operating Costs -$50.2M in FY26-27 Departmental operating budget changes, including leases, debt, risk, etc. Property Tax — Appeals Refunds $56M additional appeals in FY25-26 AAB refund liability rising; commercial values remain below 2020 sale prices Property Tax — OCII Correction -$44M cumulative SB-593 housing bond debt service now 86% property tax funded; prior forecast was incorrect Excess ERAF Risk Structurally volatile AB 2526 (2026) may divert more ERAF to special education, reducing City's share; tentatively $90M at risk Prop M Filing Timing (FY25-26) Shift to FY26-27 Only 60% of tax base filed by March 2; remaining revenue shifts forward — total unchanged Business Tax Revenue Projections General Fund | FY 2024-25 through FY 2029-30 | March 2026 Update $1,000M $1,100M $1,200M $1,300M $1,400M $1,500M $1,600M $1,700M $1,800M $1,120.4M FY 24-25 (Adopted) $1,337.6M FY 25-26 $1,572.2M FY 26-27 $1,477.7M FY 27-28 $1,653M FY 28-29 $1,708.2M FY 29-30 Mar 2026 Projection Dec 2025 Projection (prior) 2-Year Upside: +$90.7M vs. December forecast FY 2026-27 ? FY 2027-28 Prop M (Nov 2024) Restructured gross receipts rates & categories. FY 26-27 spike reflects filing timing — only 60% filed by Mar 2; remainder shifts collections into FY 26-27. FY 27-28 Dip Payback of FY 26-27 timing surge. Total revenue over both years unchanged; the spike simply reverses as the deferred FY25 taxes are absorbed. Underlying Driver Growth driven by worldwide sales of tech & professional services firms. Litigation reserves (~$384M) remain a material downside risk. Uncertainty Full Prop M impact unknown until Nov 2026 extension deadline. Updated Prop M performance report due Sept 1, 2026. Source: Schedule of General Fund Sources (SOURCES_3-24-2026_SK), Mar JR (3-16-26) column for projections; FY 2024-25 Year End (10/15/2025) actuals. Prior projection = 5 Year Plan Fall 2025 column. Hotel & Sales Tax Revenue Projections Hotel +$25.9M Sales +$11.1M Modest Growth Overall Both taxes growing, but at or below inflation through FY 2029-30 — local economy still below pre-pandemic levels in tourism and retail. Hotel Tax: FY25-26 Boost Mar 2026 projects $282.8M vs. Fall 2025's $272.0M — upside from strong Moscone Center events and Super Bowl LX in early February 2026. Hotel Tax: Post-FY25-26 Taper Gains slow as the Super Bowl tailwind fades. Uncertainty around international travel and Moscone bookings constrains later years. Sales Tax: Minimal Upside Grows from $188M to $222M over 5 years. Nearly unchanged vs. Fall 2025 — continued weakness in downtown foot traffic and retail activity. 2-Year Upside: $150M $200M $250M $300M $350M $400M $450M $500M //$255.3M$188.3M FY 24-25 (Actual) $282.8M $201M FY 25-26 $289.4M$201.8M FY 26-27 $291.6M$207.8M FY 27-28 $300M $215.3M FY 28-29 $304.4M$222.5M FY 29-30 Hotel Tax (Mar 2026) Sales Tax (Mar 2026) Fall 2025 projection (prior) Property Tax Revenue Projections General Fund | FY 2024-25 through FY 2029-30 | March 2026 Update | Traditional Property Tax + Excess ERAF $1,500M $1,750M $2,000M $2,250M $2,500M $2,750M $3,000M //$2,486.4M $313.4 M FY 24-25 (Actual) $2,451M $322M FY 25-26 $2,403M $302M FY 26-27 $2,407M $292M FY 27-28 $2,465M $299M FY 28-29 $2,533M $311M FY 29-30 Traditional Property Tax Excess ERAF Fall 2025 total (prior) 2-Year Deficit Change: FY26-27 + FY27-28 combined Traditional $-51M Excess ERAF +$5.1M Total Change $-45.8M Assessment Appeals AAB refund liability rising — GF must fund $56M more in FY25-26, $15M more in FY26-27 vs. prior projections. Many commercial properties still valued below their last sale price; appeals backlog remains elevated. OCII Bond Correction SB-593 housing bond debt service now 86% GF-funded — a $44M cumulative reduction vs. prior forecasts. Prior projection incorrectly allocated this cost. Excess ERAF: Volatile AB 2526 (introduced Feb 2026) may increase special education ERAF allocations to schools, directly reducing the City's share. State law changes or shifts in Prop 98 school funding can dramatically affect this line. Source: Schedule of General Fund Sources (SOURCES_3-24-2026_SK), Mar JR (3-16-26) column for projections; FY 2024-25 Year End (10/15/2025) actuals. Prior projection = 5 Year Plan Fall 2025 column.