San Francisco Controller Ben Rosenfield proposed legislation Monday that would require the city to maintain a minimum general-fund balance and to create a new budget-stabilization reserve that would augment the city’s rainy-day fund.
Fitch Ratings lowered its outlook on the city’s AA-minus general obligation bonds to negative from stable last month, citing low reserves. The city closed a general fund deficit of $438 million, or 18% of expenditures, this fiscal year with one-time solutions, including spending reserves. The city had $123 million of reserves at the beginning of this year and expects to draw that down to $50 million by year end. Its deficit is expected to grow to $522 million in fiscal 2011.
“If the city does not have a plan to rebuild reserves, financial markets are likely to downgrade the city’s bond ratings, which could substantially increase the city’s costs on any future issuances of debt, reducing the amount of important capital improvement projects the city can afford,” Rosenfield said.
His plan calls for San Francisco to maintain a minimum general fund balance of 2% of revenues and to rebuild that balance between now and fiscal 2016. The fund would buffer the city against regular shortfalls in revenues and overspending.
Rosenfield would also create a new budget stabilization reserve to augment the rainy-day fund in buffering the budget against economic downturns. The new fund would be funded by capturing surges in volatile revenue streams, such as the real-estate transfer tax, during boom years.
He would dedicate 75% of revenues above the five-year average to the new reserve. The stabilization fund would build until the combined balance of the stabilization reserve and rainy-day fund reached 10% of general fund revenue.
The new financial policies must be approved by a two-thirds majority of the Board of Supervisors and Mayor Gavin Newsom to become law. Newsom praised the proposals.
“These policies will ensure that during periods of boom or bust, San Francisco’s budget remains stable,” he said.
The board has 60 days to decide whether to approve the measures.