Let’s Hit The Reset Button On San Francisco’s Broken Budget Process

From my perch atop the Sierra Nevada Range — at an elevation of more than 8,000 feet — I may have been gazing out upon Lake Tahoe blue, but I couldn’t stop thinking about San Francisco’s budget-deficit red.

As a novice skier, my mission of the day was to shrink the size of the “wedge” formed by my left and right skis.  By moving my wide pizza-like stance closer and closer together in small increments, my instructor said I would eventually be able to abandon my tried-and-true snow-plow technique and instead slide my two skis into a more efficient and effective parallel position.

San Francisco’s budget process operates in much the same way.

As described by Mayor Breed’s former budget director Ashley Groffenberger, who now serves as the Chief Financial Officer for the City of Boston, San Francisco’s current $14.6 billion budgeting process is projected two years at a time and works like this:

First, the mayor’s team starts with the previously passed budget for the current year.

Next, small adjustments are made to the current budget — shifts intended to reflect emerging challenges, new priorities, and the mayor’s agenda.

Finally, if any looming budget shortfalls exist, the budget team either makes the cuts according to the mayor’s instructions or directs department heads to make them.  

And voilà, a new budget is born.

This process is known as incremental budgeting —  a method known for its consistency and ease of implementation.  

Like a skier going from “pizza” to parallel gradually over time, incremental budgeting avoids drastic changes. Instead, it enables small sequential tweaks that are supposed to allow for greater efficiency with each budgetary season — minus the painful falls and sore butts.

But what if there has been such little progress on issues like public safety, homelessness, and the drug crisis that we need an entirely new approach?

What if we have observed such a profound shift in daily behavior — say, due to a global pandemic — that we need to reimagine how downtown and neighborhood resources are deployed?

And what if a city government has been so stricken with systemic inefficiency and corruption that we wind up with a $1.7 million public toilet, department heads going to jail, and a total loss of confidence from our residents?

That’s when incremental budgeting fails.

The problem with incremental budgeting is that it’s incremental. Not only is it difficult to make big changes fast enough, but prior wasteful spending is hard to eliminate.  If a bad budget proposal is made in year one, it’s likely to persist thereafter.

Like bank interest in reverse, the dysfunction compounds over time.

“San Francisco government has always been inefficient and corrupt — we’ve dealt with this for decades,” said District 7 supervisor Myrna Melgar.  “And we've been able to paper over a lot of those inefficiencies with money. So we've always had enough money that we could create another department, or create a special assistant position for so and so, or create another commission.  That has led to a bunch of decisions that are inefficient.”

San Francisco’s Office of Small Business Executive Director Katy Tang, herself a former city supervisor, said political dynamics worsen the inefficiencies.  “You've got 11 people [on the Board of Supervisors], and an executive branch [the mayor], and everyone's out for their interests and their own community and their constituency,” Tang emphasized.  “It's politics, right?  People will always have their own interests.”

So, if San Francisco’s best budgeting practices aren’t actually best, what is a far better approach?

Just hit the “reset” button.

This common-sense-based approach — called zero-based budgeting by my favorite finance geeks — means that instead of using this year’s budget as a baseline precedent, we would create an entirely new budget from scratch.

Our city leaders and department heads would have to justify every expense based on its relevance and value, making it far easier to eliminate waste, optimize resource allocation, and align with strategic priorities.

To simplify things for a government that has never budgeted like this before, we could even base our budget on 2014 — when the ten-year-old budget was about half of what it is now — or 2017, when it finally crossed the $10 billion threshold.

Any department budgets greater than the amounts from those baseline years would have to be rigorously justified.  Waste could be eliminated in one fell swoop.

Sounds pretty good, right?

Whether you look at it from the steps of City Hall or a snow-kissed mountain top, San Francisco’s current budget process is rigid, sluggish and outdated.

Can we really afford to make small incremental variations of the same failed approach?

The skier in me says no.

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