Municipal CFO Series: Ben Rosenfield, San Francisco

Ben Rosenfield was appointed to a 10-year term as Controller of the City and County of San Francisco by Mayor Gavin Newsom and confirmed by the Board of Supervisors in March 2008. As Chief Fiscal Officer and Auditor, he provides fiscal management oversight of a $6 billion budget and is responsible for budgetary planning and monitoring of the receipt, collection, and disbursement of city funds.

Which statewide referendums from the November 6th election, whether passed or not passed, had the most significant effect on the City of San Francisco and its budget?

It’s an easy one in California. Proposition 30 was a temporary tax increase proposed by Governor Brown that amounted to an additional half-cent sales tax and an increase in the high-income personal income tax. Worth about $7 billion in general fund revenues for the state, it’s a very significant increase on a $100 billion budget.

The state’s budget had been balanced for the year assuming the measure would pass. If it had failed, it would have triggered automatic mid-year spending cuts to K-12 and higher education, which actually isn’t directly organized as part of the city and county responsibility in California.

It’s easily the most significant financial measure on the budget with the most lasting impact on locals and statewide residents. It’s very positive for us that it passed. The state and federal government are about one out of every five dollars in our general fund, so we are hugely dependent on what the state and fed’s financial situation looks like. So, we’ve got this ironic situation at the moment where our local economy is outperforming expectations—our local taxes look great, our budget looks more structurally balanced than it has in many years—but the state and federal government, the things we can least control, have had the most impact on us.

How do you view the relationship between public funds and the construction or renovation of professional sporting facilities? Are the future benefits to the city of a new Golden State Warriors’ basketball arena worth the $120 million reimbursement requested by the franchise?

We’re very early in the process in trying to figure out if the Warriors make sense in San Francisco and what kind of financing deal that may look like. The general outline of the deal that has been constructed by the mayor’s office is that we have a very dilapidated pier jutting into the bay that, absent a huge amount of seismic bracing, is going to collapse into the water in the next 15 years. It’s been condemned, literally.

The Warriors will pay to construct a stadium on this private pier using private funds and it will generate taxes that will be bonded to brace the pier on which the stadium will be built. There will be a big debate over whether that is public financing of the stadium. Proponents will say, “No that is not public financing of the stadium because the Warriors are paying for the stadium out of pocket.” The taxes generated by the Warriors will be plowed back into fixing the underlying public infrastructure, up to the point where it is paid for. The rest of the taxes will begin to go to the city.

So it’s not a dissimilar deal from the model that was used to develop the Giants stadium at AT&T Park. Generally speaking, I’m not a fan of public financing of sports arenas where taxpayers are paying out of pocket for a cultural amenity. I think you see general obligation bonds and general hotel taxes dedicated to stadiums—I believe that’s how part of the Bears stadium in Chicago is funded—although most of the economic benefit reports I’ve viewed in the past are red. There are more impactful things a city can do with tax dollars to improve its economy besides a stadium. So while I’m all for sports stadiums in cities, I’m not for the use of public dollars to do it.

Furthermore, there’s a big difference between a baseball stadium and a football stadium. With a football stadium, there are literally eight games being played there each year. When you talk about a public subsidy to a football arena, it’s important to remember that it is going to draw people eight days a year, driving almost no hotel stays, and resulting in almost no community leakage into the economy from people before or after the game. It’s hard to make a tax investment justification here.

What factors contribute to your analysis of San Francisco’s transportation investment options? How do you value a Muni extension over other options like trails for biking or walking?

It’s a challenging time on this front. Transit is probably the single biggest capital investment need in San Francisco, and I think that’s probably true of any aging, fully built-out jurisdiction in the country. We are doing what we can to get people out of cars because it is the costliest form of transit when you internalize all the external costs. And we suddenly have these new modes, bike and ped in particular, that people are using now that are much cheaper than mass transit. I think biking accounts for something like five percent of the trips in San Francisco. The cost of a bike lane with protections from traffic and striping is a fraction of what that trip costs on a bus or on a train, let alone in a car.

So, there is a lot more investment in all forms of transit, but huge gaps remain. In San Francisco we suffer from the fact that we don’t have a subway infrastructure built. We’ve got a central subway down the heart of the city, but all of our transit is competing with public thoroughfares on some levels. It’s very congested and we’ve made a lot of effort to use congestion pricing at parking meters to push cars off the streets more efficiently.

The single largest thing going on in transit at the moment is the construction of a very short subway that runs north from the central corridor of the city into Chinatown through part of the city that’s very densely served by bus. It’s a $2 billion, two-mile transit tunnel and the first extension to the subway in a long time. That project has been fully funded by the feds, and construction is now underway.

How much sway did you have in deciding where to put that new line?

Very little. With environmental quality control laws in California, this project has literally been discussed for 20 years. It dates back to the 1989 Loma Prieta earthquake in California, where the damage to the freeway along the waterfront led to it being torn down.

With local taxpayers contributing to the budget of the City College of San Francisco, how has your office been involved in averting its potential bankruptcy? What kind of repercussions would either bankruptcy or a loss of accreditation have on the city’s budget?

The community college in San Francisco, like our K-12 and higher ed, is distinct from the city and county’s direct responsibility of control. But we are obviously very concerned about the community college. The state has a very structured process to walk community colleges through when they’re in this circumstance, and there’s been a fiscal assistance team assigned that gives them a very specific game plan of things to do.

Frankly, the biggest issues with them are mainly with governance and decision-making. They haven’t made timely management choices when they’ve needed to reconcile reality with their hopes. All community colleges in the state have lost huge amounts of money as a result of state budget cuts and most have shrunk to live with what they can. This community college has not, so they’ve been shoeing through their reserves, spending down, and advancing money, using one-time gimmicks.

The good news about that, frankly, is we can decide who manages the school. They’ve had an interim chancellor and now a permanent chancellor who have taken aggressive steps. The mayor’s office, my shop, and others have been supporting them as needed, helping them with labor negotiations. At the very least, this is a moral obligation—the community college system is such an important part of the city’s economy, and citizens perceive that the city is providing these services.

The community colleges benefitted from the passage of Proposition 30 and the voters just approved a local parcel tax, about $100 per year for all homeowners and commercial property owners, for the college. It’s kind of a nice story: it takes a two-thirds vote to pass parcel taxes, which are basically property tax increases in California, and it passed with over 70 percent of the vote. And you’re talking about 70 percent of the electorate, almost none of whom are attending the community college. San Francisco tends to have a very generous taxpayer base and this is another example of that.

You’ve said, “There is no way that San Francisco goes bankrupt” because services can be cut as costs increase.  Are there any services in the city that are so sacred they are worth risking insolvency? If not, how do you convince elected officials to make such politically unpopular decisions?

I think there is hypersensitivity about bankruptcy in California. We’ve had three or four typically small cities declare bankruptcy as a way of shedding labor contract requirements, not defaulting on bonds. As a result of that, there is a high level of sensitivity from ratings agencies, financial institutions, and investors on all of us in California. The truth is our circumstances are dramatically different. San Francisco has a very healthy tax base. We’re the only county in the whole state that did not lose property tax revenue at any year during this downturn, and we have a diversified revenue base. Very little of our $3 billion general fund budget, somewhere around 2 to 3 percent, is spent on general fund debt. To imagine a world where that other 98 or 97 percent of the budget would crowd out the 3 percent and we would choose to not pay the 2 or 3 percent of our general fund budget that’s backing up our debt service, it’s almost not imaginable.

Others in the state have faced very different circumstances where they’ve had to halve the size of their police department or shutter all of their libraries. Those choices aren’t conceivably on the table in San Francisco given the basics of the diversification of our revenue base, the relative wealth of our tax base, and the state of city services. We benefit in San Francisco from a combined government. We’re both a city and a county, so we have access to both revenue streams. So we’re much less dependent on the way consumer-driven downturn kills your sales tax or a real estate-driven downturn hits your property tax because we have both and many others.

As you get further away from urban cores into places where they are heavily dependent on property tax alone, the real estate crush deflated their property values significantly and they were just left with huge hanging costs and revenue losses of 20 percent in a single year. Because of the diversification of our revenues it just has not happened to us.

What recommendations has your office made that affect criminal justice in the city?

It’s an interesting time in California at the moment for criminal justice. Given the fact that they had not enough jail beds at the state level and not enough money to be able to afford reasonable healthcare for those people in jail, they’ve realigned a whole host of what were formerly state prisoners to county jail systems and a whole host of what were formerly state parolees to the county parole system.

So we have this huge influx now of what were formerly state prisoners and what were formerly state parolees into our local systems, which is leading to a lot of fun and interesting experiments as to what we can do to get to better outcomes for these populations. The state gave us some money that offset some of the direct costs of this, but the hope, for the state and us, is that we are in a better situation locally to use the right intervention programs to avoid reincarceration or help someone successfully serve out his parole or probation. We have a pretty rich social service network in San Francisco, so it is a fun experiment that is just starting and we are probably better situated than the state to get the outcomes we want.

My office has been involved analytically to help with the tracking and reporting of changes in the adult probation population. We’ve been doing some work to model our expected jail populations in the future because we’re actually in the midst of trying to rebuild one of our seismically unsafe jails. It’s an interesting time because we started the process to rebuild the jail and now we’re wondering what our long-term jail population will look like. And the really interesting piece of this is the trade-off between having to pay more for capital costs of constructing a larger jail versus a comparable investment in alternative detention that will avoid you ever having to build that bed.

In California, a general obligation (GO) bond takes a two-thirds vote to pass, and San Franciscans have never voted for a GO bond for a jail. In this case, we have a problem because voters are never going to approve the bond to renovate a seismically unsafe jail that has a thousand people in it against their will. So we’re going to have to do this directly out of the city’s general fund, and it’s going to be hugely expensive. Since it’s our largest seismically unsafe jail in the city, it’s really a question of, of those 1000 beds, how many do we rebuild in the new seismically safe jail?

At the moment, we have 2000 beds in the system and we have a jail closed right now because we only have about three-fourths of our system filled. So we’re at about 1500 prisoners. Another reason we are different than others in the state is because we are picking up these new state prisoners and we actually have capacity in our system. A lot of others in our state are figuring out “what do I do with these people? We were already full and now you’re sending us 200 more prisoners.”

Our population between ages 20 and 40 has declined dramatically in San Francisco, as our city gets older and younger. The result of that seems to translate to lower crime rates, which results in a lower jail population. We’re at a 15-year low in terms of our jail population. But we also need to look at why this is happening. Does it have to do with San Francisco being unaffordable to the 20-40 age range or are people with younger families not being able to afford to stay once their kids enter school age?