We keep seeing signs that San Francisco isn't out of the woods yet. Earlier this week we learned that the biggest remaining tenant in the city's biggest mall would be closing their doors soon, 11 years before their current lease expires. This is not what recovery looks like.

On top of that, the entire city is facing a massive budget deficit which could exceed $1.4 billion by 2027. Former Mayor London Breed's budget director said a year ago, "We are in a tough spot." Why is this happening? Because there is so much vacant space downtown that property rates have been falling.

The pandemic-induced changes to in-person work — with many companies now adopting remote or hybrid policies — have spurred a dramatic decline in the downtown office market, reaching a vacancy rate of more than 30%.

With that drop in demand, downtown office buildings have hemorrhaged value. The City has seen a stark rise in the number of property owners appealing The City’s assessment of their property value, which, if lowered, reduces the amount of property tax they are required to pay.

The revenue generated by the transfer tax — paid when a building is sold from one owner to another — has also dropped precipitously, reaching its lowest point since 2011.

SF has a new mayor now, Daniel Lurie, who is already signaling that budget cuts are coming. He's promising to DOGE America's bluest city.

In his first meeting with city department heads Jan. 9, the new mayor pledged to “eliminate $1 billion in overspending” in the next three years, warning that the fiscal discipline would be “challenging” and “probably even painful.”

Lurie suggested he’s going to address the city’s $876 million two-year budget hole by changing the city’s “structural deficit” — usually code for “cuts” — instead of relying on one-time funding supplements as former Mayor London Breed did...

In his directive to heads of departments — including the Municipal Transportation Agency, Public Works, and Public Health — the mayor said he wants to “eliminate our least effective programs.”

All of that is good and necessary but it also means the city absolutely does not have money to splash out on things like public transportation. And that brings me to the point of this post, which is that SF's public transportation continues to be headed for cuts unless some new source of funds can be found. 

I've been over the doom loop thing many times but the very short version is this: Big cities are built around public transportation (trains and buses) and those systems are key to the future of downtown SF and the city's overall recovery. And yet, they are currently on the brink of major cuts because ridership is down and costs are up. Officials are aware the city's future hangs in the balance.

Alicia John-Baptiste, an incoming policy chief in the Lurie administration who will be overseeing SFMTA operations, laid out the stakes in stark terms.

“The question that we are grappling with right now is not only critical to Muni, but critical to the future of San Francisco,” John-Baptiste said. “I think most of us in this room understand that Muni truly is the lifeblood of this city. There is no economic recovery without Muni. We don’t meet our social and environmental goals without Muni. So, understanding how we get to a sustainable solution is of utmost importance.”

If public transportation gets cut, then SF really is in doom loop territory. Once those cuts are made, the chances of downtown recovery go down sharply. On the contrary, it would reinforce all of the negative trends the city is trying to overcome, i.e. fewer people downtown, more vacancies, less tax revenue, less money for services, etc.

Officials aren’t sugarcoating just how calamitous the SFMTA deficit could be for San Francisco’s economy if the public transportation system is forced to substantially scale back. The number of visitors to the city would drop, leading to a trickle-down effect on the bottom lines of restaurants and other small businesses. Commuting workers would also have a harder time getting in and out of the city.

“It clearly would be a serious negative shock to the city’s economy if Muni was forced to make draconian cuts to service,” said Ted Egan, the city’s chief economist. “There is literally no way to fill downtown with commuters unless you have public transit.”

So what's the solution? Obviously new taxes are needed but, at this moment, no one knows exactly where that money will come from. There are two ballot measures coming up next year, one for the city and one for the region (4 counties) that would create new sales taxes. However, even if both of those pass, it won't be enough to avoid cuts. So the city is holding brainstorming sessions to come up with new ideas. 

So far the ideas include toll roads, congestion pricing, taxing Uber, Waymo and other taxi services just to operate in the city, additional public parking fees for tourists and even a tax on cell phones. 

State Sen. Scott Weiner is not my cup of tea but he's not wrong about what's at stake here. He called the possibility of cutting public transportation in SF an "existential threat" to the city. If city leaders don't come up with a workable plan soon a city-wide recovery is probably going to be off the table in the near term.