S.F. City Budget Surplus Dissolves Into Big Deficit

Just six years ago, San Francisco Mayor Dianne Feinstein presided over a luxurious $152-million budget surplus, the largest of any U.S. city. But the savings account ran dry about the same time Feinstein left office.

Feinstein’s successor, Art Agnos, has spent his first six months at City Hall wrestling with a $179.6-million deficit, the worst budget crisis in city history.

Some uncontrollable factors, such as the AIDS crisis, which has sapped public health funds, and cuts in federal support to cities have contributed to the reversal. Revenues from the sale of excess hydroelectric power from the city’s Hetch Hetchy system dropped to $25 million this year from the previous $50 million, largely because of the drought.

But lots of fingers also are being pointed--some at a system that, between union contracts and constituent pressure, makes it very difficult to check growth in city expenditures. And many--including Agnos--are accusing Feinstein of free-spending policies and poor management.

Feinstein declined to be interviewed for this story, but her press spokesman, former deputy mayor Jim Lazarus, said her budgets reflected the desires of residents.

“You’re dealing with a liberal environment,” said Lazarus. “People want a lot of services; they expect it; that’s why they live here.”

Moreover, Feinstein’s supporters note that city supervisors, many of whom now are critical of her budget policies, also were part of the budgetary process.

City supervisors vote today on the new mayor’s first budget package, and by law it will be balanced. However, trimming almost 10% of a $1.91-billion budget has been painful for the city, and for Agnos.

“We’re asking an intern to do radical surgery his first day on the job. He just got here and he’s got to clean up the mess left by someone who was mayor for . . . years,” said Supervisor Richard Hongisto, who calls Feinstein’s management of the surplus “reprehensibly inept.”

Shifting the Blame

Agnos has been only partly successful in deflecting blame for the crunch, and some of the steps he has taken could come back to haunt him.

For example, at Agnos’ urging, in June city voters approved a ballot measure to postpone $43 million in annual cost-of-living adjustments for city employees. The freeze was a one-time measure that gives the city much-needed relief in the current budget, said David Fong, the city’s chief assistant controller. But what happens next year, when, unless the voters act again, city employees will be due not only next year’s adjustment, but the one postponed from this year?

“The concern we have is what do we do as an encore,” Fong said.

“We’re right in the hole from the word go because we’ve got a wage increase of $80 million or $90 million,” said Bob Gamble, who has served both Agnos and Feinstein as budget director since 1986.

Finding non-controversial or painless cuts has been difficult. “Everyone’s saying ‘Cut, cut, cut, but don’t cut anything I’m interested in,’ ” said Agnos’ press secretary, Eileen Maloney.

Agnos’ prescription for curing the record shortfall has included sweeping service cuts, $30 million in new business, hotel, parking and other taxes, and the elimination of 1,100 jobs from the city payroll through attrition and layoffs--about the same number added under Feinstein, he says. About 200 city workers actually would lose their jobs. (With 24,000 workers, San Francisco has the highest ratio of city employees to residents of any city in California.)

Awaiting Approval

Some of Agnos’ proposals, including the new taxes, still must be approved by supervisors. Others, including increased transit fares, already have been adopted.

“We’ve already cut $75 million out of the general fund,” said Gamble, adding that next year is likely to bring more of the same. “We got some of the fairly easy stuff. . . . Eventually you get to the point where you have to cut basic services.”

As an example of the budgetary twists that have engaged Agnos, during a debate over whether the city would have to close five branch libraries, the supervisors’ budget analyst, Harvey Rose, said the libraries could be kept open by eliminating 46 Fire Department drivers whose main function is to accompany department brass wherever they go. Agnos was forced to dismiss the scheme because the drivers are protected by a union contract.

Moreover, last Tuesday a federal judge blocked all proposed demotions and layoffs in the Fire Department to prevent discrimination against low-seniority women and minorities. Budget analysts say the cuts targeted for the Fire Department instead will fall on other departments already hit hard by austerity measures.

The budget surgery is designed to minimize effects on residents--and on politicians. Commuters will pay slightly higher bus and trolley fares, a blow the supervisors are expected to aggravate by curtailing service later this month. Basic fares climbed from 75 cents to 85 cents.

Higher Cable Car Fares

But cable car fares will also rise from $1.50 to $2, like the hotel tax, a burden that falls almost entirely on tourists who, as one local newspaper columnist pointed out, do not vote in San Francisco.

Other means taken to slash the deficit seem like technocratic sleight-of-hand, such as when the city attorney lopped $23 million off a $40-million estimate of potential pay-outs for lawsuits against the city.

The mayor has tried with limited success to put some of the onus for tax increases on the voters through the use of ballot propositions. But voters last month rejected by a 56% to 44% margin a ballot measure to allow new taxes and an open-ended spending increase.

“You can’t keep increasing services without increasing revenues. Most San Franciscans can look in the mirror if they want to know who to blame” for the deficit, said budget director Gamble.

Agnos later found a way to raise the taxes without voter approval. Only a week after the vote he announced the city had mistakenly calculated its budget limit set by the state’s Gann initiative, and that cleared the way for the $30-million increase.

Businessmen and some supervisors cried foul, and within a few days city Controller John Farrell, whose lifetime appointment provides him some insulation from shifting political winds, took the blame for not having told Agnos about the loophole before the vote.

Political Results

The political backlash from the crisis and the belt-tightening is not yet clear. Five of the 11 supervisors are up for reelection in November.

Feinstein, widely believed to be preparing for a gubernatorial run in 1990, left office boasting of the city’s fiscal strength. At the time the city faced a $77-million projected deficit. The projection steadily rose, virtually doubling to $150 million within a month of Agnos’ swearing-in Jan. 8, eventually peaking at $179.6 million.

Voters seem to blame Agnos for the deficit, however. Swept into City Hall by 70% of the electorate, one of the biggest landslides in city history, the former assemblyman saw his popularity plummet by April, when only 34% of voters polled by the San Francisco Chronicle rated his performance as mayor either good or excellent.

Although Agnos had avoided assigning blame for the deficit, after the poll he began reminding the city that he inherited the problem from Feinstein, who enjoyed a 66% favorable rating last July.

The city’s budget grew from $790 million in 1978 to $1.96 billion in 1987. Although each of Feinstein’s nine budgets was balanced, they grew faster than inflation and often relied on a continuing surplus to fill the gap between spending and income--about $47 million in 1981, $54 million in 1982, and $65.5 million in 1983.

Carry-Over Surplus

Some of the surplus was carry-over from previous budgets, primarily due to unexpectedly high revenues from electricity sales and property taxes. But most came in 1982, when the state Supreme Court ruled for the city in a lawsuit brought by opponents of a new payroll tax. That freed up $80 million the city had collected and set aside pending settlement of the case.

“In fairness to the former mayor she used to warn everybody . . . we were living on surplus--right before she applied it to the budget,” said Maloney, Agnos’ press secretary.

About half the surplus went to one-time expenses like new buses and improvements in roadways, buildings and parks. That made sense, according to many City Hall insiders, because the surplus came from one-time sources that could not be counted upon in the future.

But the city also became heavily dependent on surplus funds to support the general fund.