SF expects 15% of office workers to stay remote all the time. How will this affect the economy?

San Francisco officials predict about 15% of office workers will remain remote when the economy is expected to stabilize in 2023, a major shift that would permanently hurt business tax revenue, according to a report released on Wednesday.

With many offices remaining empty, business tax revenue is expected to increase slightly by 1%, from $957.1 million in the current fiscal year to $966.9 million in the next fiscal year, at from July. Revenue is expected to exceed $1 billion in each of the next three years, which is above the pre-pandemic peak of $917.8 million in fiscal year 2018-19 and well above the pandemic low of 722 $.6 million in the last fiscal year.

Sales tax revenue is expected to increase 26.1% from $145.7 million in the current fiscal year to $183.8 million in the next fiscal year as more workers and shoppers will return to the city, but they will be less than the roughly $200 million a year before the pandemic.

After ending 2019 with unemployment at a record 2%, San Francisco’s economy has been crushed by the pandemic, with the unemployment rate climbing to 13% in March 2020 and 175,000 jobs lost in the metro area. The city suffered a long partial recovery with many setbacks. Unemployment had fallen to 3.9% in October 2021, but many workers are staying at home and many never want to return, a grim trend for the downtown businesses and restaurants that depended on it. Due to net emigration, the city suffered a population loss of between 2% and 7% between 2019 and 2020, according to government data.

Still, San Francisco’s financial health is better than expected. City officials said in December they expect a budget surplus of $108.1 million over the next two fiscal years, the city’s first surplus since 1998. A strong commercial real estate market , federal aid and record retirement investments helped bolster the budget. Deficits of $38.6 million and $148.9 million are still expected for the next two fiscal years, but these are lower than previous projections.

Voters approved three tax measures in November 2020 that will help offset losses from fewer office workers and tourists: Proposition F raised taxes on some businesses; Proposal I doubled the tax rate on major real estate sales over $10 million; and Proposition L taxed high executive salaries.

“You don’t have a massive deficit over the next two years because of these things,” said Michelle Allersma, director of the San Francisco Comptroller’s Office budget and analysis division. “Our earnings have fallen off a cliff, and we assume they are coming back.”

But the omicron variant has plunged the city and the country into the worst infection rates yet, with record daily cases in San Francisco. exceeding 2600. The gloomy winter has thrown the economy into further uncertainty, delaying office returns, closing restaurants and retailers and canceling major events.

“The big caveat of the report is that no one can tell you the course of the pandemic,” Allersma said. “The pace of recovery is uncertain, given remote work, tourism and inflation.”

The city expects $72.7 million in COVID-19 public health costs in the next fiscal year and no additional spending in future years, an assumption that depends on whether the pandemic is over by the end of the year. second half of 2023.

Overall tax revenues are expected to return to pre-pandemic levels within the next four years – if the pandemic does not deal major further blows to the economy.

The city’s retirement system, the San Francisco Employees Retirement System, posted record returns of 33.7% in the past fiscal year, with assets jumping by $9.1 billion. This boom has been the biggest source of expense savings, as the city is expected to pay $125 million less for employee retirements over the next two fiscal years. However, the projection calls for a lower annual rate of return of 7.2% in the future.

Federal aid has contributed more than $1 billion to city finances, a major boost that didn’t exist before the pandemic. The March 2021 federal stimulus bill contributed about $636 million to city finances, with some being used to balance the current year budget. Additional reimbursements of $547.7 million from the Federal Emergency Management Agency are expected over the next three fiscal years.

The city’s projections will be revised several times this year.

Roland Li is a writer for the San Francisco Chronicle. Email: [email protected]: @rolandlisf

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