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Feb 15

State of the City

Good morning sf.citi members,

I hope you are having a great week so far.

I am emailing to recap a presentation and discussion from last week with City Controller Ben Rosenfield and Chief Economist Ted Egan. Please see the attached presentation below as well as highlights from the conversation.

As always, thank you for your continued membership and support.

Jen

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Highlights from City Controller Ben Rosenfield and Chief Economist Ted Egan

  • Unemployment
    • SF entered the pandemic with the second lowest employment rate in the state (2.2%) and now we’re fourth lowest (2.9%).
    • Even though it appears that the City is in good condition with under 3% unemployment, that number takes into account SF’s smaller labor force (it’s estimated that SF has 20,000 fewer residents).
  • Job Recovery Compared to Other Large Metros
    • SF losses in jobs are on par with others, but the City’s recovery lags virtually every other major city.
  • Taxable Sales
    • Sales tax numbers are up across the board in California, except in SF, which reinforces the City’s slow recovery.
  • Return to the Office
    • Remote work is the top reason identified for the City’s slow economic recovery. The numbers are getting better but we’re seriously lagging behind every other metro area.
    • SF entered the pandemic with one of the tightest office markets and now has one of the highest vacancies rates (≈23%). Companies are hiring and the offices will eventually be refilled, but how much will office space be worth when they do?
    • It isn’t just tech leaving which means it’s something about SF.
  • Out Migration
    • The gap between the high number of people moving out and the low number of people moving in hasn’t closed. And because most of this out-migration hasn’t been picked up in official data, the City’s population and economy are probably smaller than they currently appear.
  • Tourism
    • Hotel revenues are at 40% of normal which seriously trails other major metro areas in the West that have returned close to or exceeded pre-pandemic hotel demand.
    • Tourism isn’t expected to reach pre-pandemic levels until 2025-2026. Part of this can be attributed to the City’s heavy reliance on conventions and international travel (especially from China).
  • General Fund Budget Outlook
    • SF is experiencing a disconnect between economic and financial conditions as the economy faces a slow recovery while the City demonstrates a strong financial resiliency.
  • Why the Disconnect?
    • Improvements to the pension fund are driving down employee contributions and have resulted in a fully funded pension fund for the first time in 20 years.
    • New revenue sources are carrying the City and offsetting stark losses from certain lagging tax revenue streams.
    • The City is doing better financially than it has in decades which allows city officials to monitor long-term trends and respond accordingly.

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