S.F's budget will be saved from painful cuts thanks to federal stimulus. What about in the next one?

The federal stimulus package likely to be signed by President Biden this week will erase the majority of San Francisco’s projected $650 million budget deficit over the next two years, saving City Hall from having to make painful service cuts and layoffs — for now.

While the federal stimulus is a boon for the economy in the short term, it will not solve all of the city’s financial woes. San Francisco’s ultimate recovery heavily depends on how quickly parts of the local economy bounce back, from tourists visiting the city to employees returning to downtown offices.

Without a substantial comeback in hotel, sales and business taxes, City Controller Ben Rosenfield said that Mayor London Breed and the Board of Supervisors will likely grapple with a fragile budget over the next few years.

“That’s going to be the big uncertainty over the next two years,” Rosenfield said in an interview last week. “How quickly will the economy recover? And, in the short term, that’s largely based upon how quickly health conditions will improve.”

The state and local aid is part of a $1.9 trillion federal stimulus package that will also provide money for public transit, vaccine distribution, extended unemployment benefits and $1,400 stimulus checks for those who make $75,000 or less.

The stimulus package — which the House may vote on as early as Tuesday — will inject about $600 million into San Francisco’s coffers over the next two years, Rosenfield said. That leaves Mayor London Breed and the Board of Supervisors with a $50 million hole to fill, a fraction of what they were preparing to deal with.

“We still have a problem,” said Jeff Cretan, spokesman for the mayor. “We just don’t have a problem right now.”

San Francisco’s economy has slowly recovered over the past few months, as activities like indoor and outdoor dining resumed. But downtown San Francisco remains desolate and devoid of office workers, showing how the city’s local economy has been battered by the pandemic.

Rosenfield said business taxes will likely take a large hit this year as downtown office workers continue to work remotely. Tourism will probably not return to pre-pandemic levels for a few years, he said. He also expects to see some downtown offices, hotels and retail properties appeal their property assessments this year, which would impact the amount of tax revenue the city has to spend.

“It matters,” Rosenfield said. “Property taxes are our single largest tax source.”

Regardless of the challenges ahead, the stimulus is welcome news for city leaders who were preparing to make substantial budget cuts this year.

City Hall learned in December that it could face another $653.2 million deficit over the next two years, after already filling a $1.5 billion deficit in the fall. That was because of weaker-than-expected revenue growth in the business and tourism industries, raises for city employees and increased expenses needed to respond to COVID-19.

The city learned in December it had a $125 million surplus for the current year due to higher-than-expected property tax revenue, increased federal reimbursements and lower expenses. But that was only for the current year.

Breed ordered every city department to propose cuts to trim budgets by 10% over the next two years. Those cuts could have had noticeable impacts, from fewer 911 operators to fewer trial attorneys in the public defender’s office.

If it had to slash its budget by 10%, the Department of Emergency Management said it would have had to reduce its overtime budget. The department said that would impact its ability to answer 911 calls in less than 10 seconds, and some people would have to wait over a minute for a dispatcher to answer their call.

The public defender’s office said in its proposal that it would have to lay off about 23 trial attorneys, which would cause “a significant reduction in representation and provision of legal services to indigent people of color.”

Now, those cuts will likely not have to happen at such a dramatic scale. But Supervisor Matt Haney, chair of the Budget and Finance Committee, said he will still consider some of the departments’ budget proposals to see where the city can save some money.

“I expect that most of the stimulus, assuming it is flexible, will be used to address our deficit, which will absolutely reduce the level of cuts that are needed,” Haney said. “But some reductions are still needed and should happen.”

The budget process, which will play out over the next few months, will likely be fraught with tension between the mayor and board, who often clash on politics, priorities and funding decisions.

The mayor and board have already clashed on how this year’s $125 million surplus should be spent.

While they agreed on how the majority of it should be spent — like a small business grant and loan program, and a business fee and license deferral — they disagreed on a big piece.

The mayor wanted to spend $50 million to offset the Department of Public Health’s projected budget cuts, which may not be as urgent due to the stimulus. Meanwhile, the board wanted to spend the money on other projects like free summer camp for all public elementary school kids and a package of reforms to address the city’s opioid crisis.

Haney said those proposals reflected the urgent needs of the city. But Breed wasn’t thrilled about them, as some of the proposals would require ongoing funding.

“We can’t keep introducing supplementals with pet projects and everything that is on everybody’s fantasy Christmas list that doesn’t necessarily serve the purpose of taking care of the people of this city,” Breed said last week.

She said her priority is to make sure that San Franciscans don’t feel the impact of the city’s budget woes. With the stimulus looming, she said the city will likely be in a “good place” to stave off any painful cuts.

“If the board cooperates,” she said, before turning to another question.

Trisha Thadani is a San Francisco Chronicle staff writer. Email: tthadani@sfchronicle.com Twitter: @TrishaThadani

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