San Fran protects criminals from foreign countries, can not arrest thousands who have broken into cars and stolen private property—this is a city where the drugged out are in charge and the families are in danger every day. If you want your kids to grow up without values—as a value—San Fran is the place to go. Now we know, like almost every other city in the State, this is a town that is bankrupt.
“Using the official numbers, San Francisco is $10 billion in the hole ($4.2 billion of health care liabilities, plus $5.8 billion of pension liabilities). But even those very large numbers are too
The last official estimation date for the OPEB liability is July 1, 2014. (Yes, really.) The total liability was $4.26 billion using a discount rate of 4.5 percent, for which The City had provisioned $49 million, for a net obligation of $4.21 billion. Here’s how to think about this $4.21 billion: On July 1, 2014, if San Francisco had raised a lump sum $4.21 billion in taxes and invested that money indefinitely for an annual return of 4.5 percent, then all future OPEB costs could be paid from that lump sum. Obviously, The City did no such thing. In fact, quite the contrary: Based on the payments The City made in each of the subsequent fiscal years since (which you can find at the bottom of page 109 of the FY 2017 Comprehensive Annual Financial Report), it’s clear the obligation has actually grown.”
San Fran, like other government entities refuses to tell the public the truth about its finances—any wonder these folks love to support higher taxes, they do not know they are broke.
San Francisco is officially $10 billion in the hole
San Francisco’s cumulative budget deficit over the next two fiscal years is projected to be $262 million out of an annual budget of roughly $10 billion.
By Patrick Wolff, SF Examiner, 3/18/18
My wife and I have two kids; our 12-year-old son is in sixth grade and our 9-year-old daughter is in fourth grade. Both were born and raised here in San Francisco and have gone to public schools from kindergarten on up. The City is a special place, and I love it very much. But love sometimes means telling hard truths, so here it is: I’m concerned about San Francisco’s future and the state of its finances.
I have more than a dozen years of experience managing money professionally, so I love reading financial statements and crunching numbers. A lot of people don’t feel the same way, and that might include you. That’s OK. I will comb through the numbers for you, so we can focus on the big picture together. All I ask is for a bit of your time to absorb what the numbers mean. Choose the red pill and see the world the way it really is. Let’s take this journey together and follow the money.
San Francisco is more than eight years into an economic boom, and city unemployment is lower than 3 percent. So you would think our budget should be in good shape, right? Wrong.
San Francisco’s cumulative budget deficit over the next two fiscal years is projected to be $262 million out of an annual budget of roughly $10 billion. And the deficit keeps growing as the forecast period lengthens: By year four, the cumulative deficit is $709 million. Those are the official forecasts from the 2017 Joint Report by the Controller’s Office, Mayor’s Office and Board of Supervisors’ Budget Analyst.
Take a moment to appreciate what the last paragraph means. Large and growing structural deficits mean that — all else equal — San Francisco must keep cutting city services and/or raising taxes year after year after year. Why is this happening? The largest source, by far, of San Francisco’s budget pressures is also one of the least understood: the obligations The City has already incurred and must now honor for health care and pension payments.
Before we walk through the numbers for San Francisco’s health care and pension obligations, let me explain how we are about to switch gears. So far, we’ve been looking at annual budget shortfalls — how much expenditures need to be cut and/or taxes need to be raised over two years ($262 million) or four years ($709 million) to balance the budget as required by law. But when we look at the health care and pension obligations, we look at the total amount of money owed. (For you finance geeks out there, we’re switching from the income statement to the balance sheet.) When you owe money, you must pay it down over time; San Francisco’s need to pay the health care and pension obligations it has already promised is swallowing up the budget.
Using the official numbers, San Francisco is $10 billion in the hole ($4.2 billion of health care liabilities, plus $5.8 billion of pension liabilities). But even those very large numbers are too small: Using more realistic numbers, the hole is a lot deeper.
Let’s go through the numbers step by step. We will start with the health care obligations, generally referred to as Other Post-Employment Benefits (OPEB).
The last official estimation date for the OPEB liability is July 1, 2014. (Yes, really.) The total liability was $4.26 billion using a discount rate of 4.5 percent, for which The City had provisioned $49 million, for a net obligation of $4.21 billion. Here’s how to think about this $4.21 billion: On July 1, 2014, if San Francisco had raised a lump sum $4.21 billion in taxes and invested that money indefinitely for an annual return of 4.5 percent, then all future OPEB costs could be paid from that lump sum. Obviously, The City did no such thing. In fact, quite the contrary: Based on the payments The City made in each of the subsequent fiscal years since (which you can find at the bottom of page 109 of the FY 2017 Comprehensive Annual Financial Report), it’s clear the obligation has actually grown.
But that $4.21 billion estimate is too small. The OPEB liability estimate is based on assumptions about the future growth rate of health care costs. In 2014, San Francisco assumed its health care costs would grow by low to mid-single digits, but now the 2017 Joint Report says we should expect “almost double-digit cost growth” for the future. Plug in “almost double-digit cost growth” and that $4.21 billion number goes a lot higher because San Francisco will have to pay a lot more in future health care costs.
Now, let’s talk about the pension obligation. As of June 30, 2016, San Francisco estimated its total pension liability was just less than $26 billion using a discount rate of 7.5 percent; to meet this obligation it had more than $20 billion invested in stocks, bonds, etc. The difference of $5.81 billion is the net pension liability. (San Francisco recently published the updated net pension liability on page 100 of the FY 2017 Comprehensive Annual Financial Report. Even after a very good year in the stock market, the net pension liability grew slightly by $20 million to $5.83 billion.)
If on June 30, 2016, San Francisco had raised a lump sum of $5.81 billion in taxes and added it to the already existing $20 billion in assets, and if that resulting $25.97 billion were to make a 7.5 percent annual rate of return indefinitely, then all future pension obligations could be paid from those investments. In my opinion, however — and I hold this view very strongly — The City’s investments will almost certainly not return 7.5 percent over the next few decades. We will be lucky to make as much as 6.5 percent, and we will probably make less. According to the FY 2017 Comprehensive Annual Financial Report (see pages 107 and 108), dropping the assumed rate of return by just 1 percentage point to 6.5 percent raises the pension liability to about $9 billion. And if the assets learn less than 6.5 percent then the pension liability goes even higher.
There it is: San Francisco is officially $10 billion in the hole. Using more realistic numbers, the hole is substantially larger – perhaps twice as deep. The need to pay down those liabilities is a major factor causing structural deficits to rise.
Is there anything else in our future other than higher taxes and reduced services? There are no miracle fixes, but there are important things we can do. I will explain more next time.
MARCH 19, 2018
DEAR PRESIDENT TRUMP:
PLEASE CUT OFF ALL FEDERAL FUNDS TO THE STATE OF CALIFORNIA…….OBAMA’S DEMOCRATIC PARTY CAN SUPPORT CALIFORNIA AND THE ILLEGAL IMMIGRANTS’ AND FELONS.
USE OUR TAX MONEY TO BUILD “THE WALL”!
RESPECTFULLY, THE FLORIDA PATRIOT!
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I was told by a MUNI Driver in San Francisco this past week that the reason they are making red zones where you cannot park all over the city, tearing up the streets so badly to do it and buying all these new buses is because there will be 500,000 more people moving to San Francisco shortly.
Really???
Businesses – shops – are leaving, leaving storefronts vacant. Rents are massive. Realty companies don’t get why the commercial tenants are leaving. I guess they don’t have an MBA, and in Real Estate, nor do they understand economics. Groan.
One jewelry shop owner who has been in his shop for decades was shot the day before Christmas, they took what they could, and he’s alive, but he’s shutting his place done by June. It’s over. Another gone. This was in the Mission, where crime runs rampant. It’s also where you find a lot of illegals.
No, the city is not going to grow from 775,000 to 1,275,000 here shortly. Legalizing illegal units and pushing small property owners to add them isn’t going to help, all it does is add another unit to the property tax base. This is because they refuse to allow developers to develop properties by clear and upheld zoning laws. They have a “Residential Design Team” in the largest Planning Department in the country here now – bigger than Manhattan’s – that is not qualified to do design, not licensed to do architecture in most cases, and they are not the architect of record with the total and only responsibiilty of design – yet they sit up there and tell you exactly what they want – resculpting buildings and playing with everyone’s money and time.
And when they told this architect to make massive, huge walls of blank stucco going down a 50% slope on a new 7,000 square foot home? I told them politely to bugger off, you have to have control joints and expansion jionts or it would be cracking all over the place, water come in, then dry rot. And I wasn’t going to do it. They backed off. Temporarily. We shall see. And that house has taken 5 years so far to get through Planning and Building and we still are not done!!!! It’s on a hill that had a slide due to a 70% cut the Building Department allowed 25 years ago. Probably some expediter involved….or favoritism…now affecting others. Or used as an excuse to collect more fees…..
Say you want to buy a property. The appraisal says the zoning allows 20 units. You pay a dear price for the property based on that appraisal.
However, here, they don’t do 1/3 to 1/4 the sales price or rental gains to cap the property price before you walk from the deal. Doesn’t work unless you can.
And further – the appraisals based on comparables or income can no longer be done and relied upon for loans. Banks should not be lending for property acquisition here and any development on those properties, period. They will lose.
If and they do the Residential Design Team deems it, they will and they can strip you of how many units you thought you could get – and should get – under the Zoning.
So developers should and are walking from projects. And Planning, intent on making it a carless, inefficient massively crowded city, are not getting takers. It’s not worth it.
So the city is growing older in the structures, with more problems. And vacancies. I know people who have three units they live in as one, and others who just leave their units vacant. The city is trying to force them now to rent within 30 days or be fined, and rent under terrible rent control laws. Which I am under, and don’t care for.
No, they don’t know how to solve problems, or incentivize.
To quote a Residential Design Team Member when I politely and nicely asked him a question when he was on the Planning Front Counter one day, when he found out I was an architect, “You sit down, shut up. We design it, you detail it and you stamp off on it.”
That is a Quote!
What do you think you need to do with San Francisco? Tell me.
I have finally gotten options, since 2007-8, when I have been desperate to leave California. Less than nothing for architects not in communist areas on the left coast. Seriously.
But finally, finally and thanks to President Trump knowing how to stimulate an economy, four headhunters from Atlanta, Birmingham, Alabama and Minnesota have called. The first ever. I have 40 years great experience from the best firms, in Atlanta. I am leaving, asap.
Good wish –May stinking SF the shit hole for real place the blame on nancy pelosi the wicked witch of all that stink-and DO NOT FUND THEM ANYTHING – Visitors best not stay in that stink hole either!
May Dems, experience the pain and shame too-but they are too ignorant by their own attitudes!
Sad that such a beautiful piece of real estate is populated by incompetent voters and elected officials. San Francisco is another good example of Democrat rule, absolute failure.
San Francisco left the State and Nation long ago when the likes of Feinstein and Pelosi came into office.
Sad, but reality is what pays the bills and apparently San Francisco is on borrowed time. States broke can’t have them bail them out. Feds, well, don’t believe and with good reason that Trump cares.
Learn to swim liberals because your sinking and fast. How long can you tread water?
Imagine that, a shit hole of a city is $10B in the hole!
It does not matter. Jerry Brown will print us some more money. You say that’s against the law? Since when did that ever matter?
That’s one of the reasons I moved away from CA. Sad, San Francisco back in the late 50’s early 60’s was a great place to visit but it progressively has gone into the sewer since then and it’s the liberal grip on the city that has driven it into the great depths of the sewers. Surely something our illustrious Pelosi should be proud of seeing as that’s her territory. As far as I’m concerned you can take San Francisco, Berkeley and Oakland and fumigate those infested cities, there is no saving them unless you take a fleet of garbage trucks and bulldozers to clean them up. Instead of our corrupt governor building a friggin bullet train for some $97 billion that is probably being tunneled through some sacred burial grounds, he should have used that money to build housing for the homeless, that area along with San Diego have more than their share and it would be a boon getting these people off the street, getting them showers and clothes and those that are capable finding them jobs, maybe can take the jobs of the illegal immigrants.