San Francisco is rapidly approaching the upper limits of what it can borrow to fund critical infrastructure, according to a new report from the city’s Budget and Legislative Analyst, and the timing could not be worse: The city has $7.5 billion worth of repairs and projects it has been putting off for years.
The financial tools San Francisco relies on to pay for those projects will be maxed out in six years, by the end of June 2032.
Today’s report, prepared for the chair of the budget committee Supervisor Connie Chan, offers a close look into the city’s borrowing capacity and what it means for San Franciscans if it runs out.
The outlook is not pretty.
San Francisco has two main forms of capital debt. One of them is general obligation bonds, which require a vote and are repaid through property taxes.
The city currently carries about $2.67 billion in outstanding debt of this kind, which is well below the city charter’s hard ceiling of about $10.74 billion.
The constraint here is not the charter limit, however, but a 2006 benchmark that caps the property tax rate used to repay this debt. That 2006 benchmark is around 0.1201 percent. The city’s current rate is 0.1105 percent, just 0.01 percent below the maximum.
The city is expected to reach that property-tax cap around fiscal year 2031-32, the report estimates.
The city’s other means of taking on debt is through certificates of participation, which are a form of debt that do not require a public vote but are repaid directly through the city’s general fund revenues.
The percentage of the general fund’s discretionary revenue taken up by this debt is around 2.61 percent today; the ceiling is 3.25 percent.
But as the city looks to fund major projects, such as street repairs and the Hall of Justice replacement, the report predicted that debt would reach its ceiling soon, around 2028-29. That would mean the city cannot issue new debt to fund capital projects.
And the stakes are high if the city’s deferred capital projects do not get done, the report said.
One example is the Westside Potable Emergency Firefighting Water System — a high-pressure water network designed to work after major earthquakes if regular water mains give out.
The system, which covers western neighborhoods like the Sunset, the Richmond, Parkside and Lakeshore, will cost about $1.58 to $1.79 billion, with only $344 million already funded. That means another $1.28 to $1.44 billion will come largely from future debt.
Given the financial constraint, the report said fully funding the project will likely take 25 years, until at least 2050.
The report lays out several options for the Board of Supervisors.
- The city could raise its property tax rate above its 2006 benchmark. For every additional 0.01 percent in property taxes, the city would be able to issue an additional $410 million in general obligation bonds.
That would mean $75 more per year on homeowners’ tax bills. San Francisco already has the eighth-highest property tax rate among California’s 58 counties at around 1.18 percent. - The city could choose to loosen the general fund limit on certificates of participation and take on more debt that way.
But the city already has a projected budget deficit of $1.09 billion by 2029-30, according to the report, and every additional dollar in debt service takes money away from city services like libraries, parks or public health services. - There is also about $309 million in voter-authorized bond money sitting unspent and potentially available to be redirected, including, for example, the $216 million from the 2018 Seawall Bond that has yet to break ground.
Redirecting the funds, however, would require a ballot measure and voter approval. - The city could re-evaluate the $422 million in borrowing capacity that is dedicated to the Hall of Justice, which was supposed to be abandoned in 2019 due to its myriad unsafe conditions.
The report estimates the new Hall of Justice would cost at least $367 million, about $55 million less than the earmarked amount.