City fills budget gap with fines, fees

by Tom Pendergast

Through increased fees, charges, penalties and enforcement, city departments have been raising a lot more money from San Franciscans in the last few years. Yet despite increasing revenues, city government has struggled to fill budget deficits, including a $338 million gap in its record $6.5 billion city budget this year.

Revenues generated by city departments - from permits and license fees, water sales, tickets and fines - are increasing almost across the board, including from the SF Department of Building Inspection, Department of Public Health (DPH), San Francisco Public Utilities Commission, Muni, Department of Public Works and Recreation and Park Department.

Along with this year's mammoth budget came a deficit that cannot be filled through raising property tax rates, because of the limitations of Proposition 13, and the failure to get increased sales and business taxes that voters rejected in 2004.

According to documents from the city controller and budget analyst offices, over the past three years, from fiscal years 2006-07 to 2008-09, revenues generated by the Department of Public Health jumped 30 percent, from $894 million to an estimated $1.2 billion.

A revenue source for DPH that is prominently on the rise is designated "eating places," restaurants and other food-serving or hospitality-industry establishments, which rose 22 percent, from $4 million to $4.9 million, due in part to increases in permit fees and other charges. Revenues from traffic fines that go to the department have jumped 79 percent in that time, from about $661,000 to almost $1.9 million. And revenues labeled "penalties" are up 60 percent, from $65,000 to more than $103,000.

"All of our fees are based on the cost of (DPH) programs," said Eileen Shields, spokesperson for DPH. "Over the past few years the cost of running programs have been more than (DPH) could recover, therefore the fees needed to be increased to recuperate all costs. The majority of the fees are now projected to be near cost recovery."

Restaurants and hospitality establishments are also getting pumped for money by the Department of Public Works, which increased its total revenues by six percent in the last year, from $110 million to $116.3 million. The department raises funds through various permits, including those for outdoor sidewalk tables, sidewalk and flower market displays, and penalties and fines for things like improperly dealing with garbage disposal.

Zander Andreas, a third generation San Franciscan and owner of the Boom Boom Room nightclub on Fillmore Street, thinks the City is being excessive in its zeal to raise money.

"I've lived here my whole life. My parents lived here their whole life and so have my grandparents. It's quite a different place now, with a lot of good improvements, yes, but as far as operating a business, sometimes I have to gasp for breath to see how I'm going to make ends meet when another fee, or a raised fee or a service cost, is enacted and put on my shoulders."

The Boom Boom Room is one of those places in San Francisco that looks a little rough on the outside, sitting on the same block with several closed and boarded-up former retail shops. Stepping inside, however, is like entering a swanky jazz-era nightclub. It has a black-and-white checkered dance floor, plush, dark-red curtains and pictures of all-time great jazz and blues musicians hanging across the walls.

Andreas was recently hit with a fee to pay for the health insurance of uninsured residents in the City. "The health care fee, basically to me it's a tax because if the employee doesn't even use it, it still goes to the city's coffers," he said. "I don't know very many employees of my friends' businesses either who are going to use this fee toward health care. I don't know that they're going to go to General Hospital to use the city's health plan. If it's not used, where does that money go? It goes into the city coffers."

Andreas said he was recently visited by fire department personnel and became acquainted with a fee he wasn't even aware existed - for a permit to have candles.

"I've been operating for 11 years with candles," he said. "If I don't use candles, the way that I've designed this place and directed my vibe of the place, the decor, vibe and feel would be completely destroyed. It would be a different place altogether. So of course I'm going to use candles. But now I have to go down to the fire department and pay a fee, my annual fee for candles." Kevin Westlye, executive director of the Golden Gate Restaurant Association, said restaurants are already getting squeezed by "aggressive price increases," including a recent rise in the minimum wage, mandatory health care benefits and rising commodity and fuel prices. Nevertheless, he understands the City has limited options in paying its bills.\

"Under Prop. 13, the county cannot raise property taxes more than 2 percent a year, which does not keep up with the rising cost of government services," Westlye explained. "The obvious solution is either new fees or fee increases. To deal with the budget deficit there has been discussion of many fee increases."

When SF Mayor Gavin Newsom's proposal to tax businesses $80 million to pay for health insurance for uninsured people in the City passed, the association requested its members add the charge to consumer's checks, resulting in a three to four percent increase in diner's tabs. At Pasta Pompadoro, a four percent charge is added to customer's bills - essentially increasing the sales tax to nearly 13 percent to pay for the new charge.

The DPW isn't just soaking restaurants. The department's charge for news racks doubled this year, from $30 to $60 per location. As well, department employees photograph garbage cans left in "plain site" and fine homeowners $100 for not putting away all three of the department's cans, those for garbage, compost and recycling. (The mayor has also proposed fining residents $100 for not properly sorting their throw-aways into the proper can.)

Rene Cazenave is a native San Franciscan who's worked with more than 200 community-based organizations over the last 41 years, like public policy advocacy groups working on community development. He suggested that departments increasing their revenues by tapping the small business owner is grossly unfair. He would like to see larger businesses downtown paying more.

"It's trying to balance the budget on the back of community residents in the absence of considering a more fair system that would also charge downtown developers and big corporations for their fair share of these services," he said. "They build monster high-rise buildings that demand a whole slew of city services." He listed things like Muni, police, garbage and sewage services, all of which will need to be expanded to accommodate more people.

"Sure, department fees make some sort of sense in that the people who pay more are those who use more; the problem is the increases are far too high for regular people. The larger folks aren't paying at all or if they are paying some more it's no sweat off their backs."

But Gabriel Metcalf, executive director of the San Francisco Planning and Urban Research association (SPUR), a public policy think tank, disagrees.

"I think the city is charging big developers every last dollar possible. Every time there is a new neighborhood plan or rezoning they attach huge fees to new development," he said.

San Franciscans are already paying more for water. The San Francisco Public Utilities Commission generates almost all it's own revenues, which rose more than seven percent since 2006.

The PUC recently tried to move to a three-tiered plan to charge water customers in the City. Dubbed the "family tax" because it penalized large families living in a single domicile, the plan was scaled back to a two-tier rate system. Critics claim it still penalizes large families who have to use more water for cooking, showering, etc.

The plan is intended to encourage water conservation, the PUC counters, by charging more money for water over a set limit.

Since 2006, water rates have increased 32 percent and retail wastewater rates rose by 19 percent, according to Tony Winnicker, a spokesman for the PUC.

One department that's been in the press lately for its revenue enhancements is the Municipal Transportation Agency, or Muni, which raised it's parking-ticket-generated revenue by raising all tickets $10 each across the board. Over the next two years, revenues from tickets are expected to increase by 20 percent, adding about $17 million to the transportation agency's pot. Revenues from boot fees for ticket scofflaws are expected to jump by 176 percent by 2010. The Recreation and Park Department is also raising many of its fees, including swimming pool fees, athletic field and other facilities rental fees, and entrance fees to places like Coit Tower.

While the government cannot arbitrarily raise property taxes to fill budget gaps, Proposition 13 does provide an opportunity for property taxes to rise when property is sold by assessing a new sales amount. According to a study by the California Taxpayers Association, during the last fiscal year county-assessed property values in San Francisco rose nine percent.

In the last three years, revenues from property taxes have risen 21 percent. During this time, other local tax revenues rose 14 percent and business tax revenues rose 19 percent. Also, revenues from charges for services in that time have risen 8 percent, from fines and penalties 6 percent, and from license and permit fees revenues have increased 20 percent.

Despite the across-the-board revenue increases, which has driven the city's budget to a record $6.5 billion, this year's budget started with a $338 million deficit. The Board of Supervisors balanced the budget with cuts in city services. Salaries in the City Most of the increased revenues in this year's budget were taken by increased labor costs, with the city now paying for more than 27,000 employees. The city recently approved new contracts with the unions of the police, firefighters and nurses, increasing costs to the City by about $118 million in the coming year.

City budget documents also show that between fiscal year 2006-2007 and this year, expenditures for salaries to the county sheriff's office increased by 27 percent, up to $82.7 million, along with benefits for those employees, which rose 22 percent.

During this time salaries for the Police Department rose 26 percent, from $250.8 million to $316 million in this year's budget. Benefits rose by 18 percent. Fire Department salaries went up 15 percent, from $187 million to 215 million, while benefits for increased by 14 percent.

Despite the increase in department costs, the actual number of funded positions dropped by eight percent. Muni salaries are projected to climb to $353.6 million by fiscal year 2009-2010, an increase of $42 million over about four years. As well, benefits for Muni workers will climb nine percent. In the last two years, Department of Public Health salaries increased by 13 percent, from 444.4 million to $500.6 million.

NTanya Lee is the executive director of the Coleman Advocates for Children and Youth, a family advocacy organization. She said hikes in the cost of city services and fees are the result of a process that started back in fiscal year 2003-2004, when the city was facing a $347 million shortfall.

"That's when all this started," said Lee. "So now it's fees that they've raised on top of those fees. The city is in a bind." In the past few years the city has also seen many middle-class and working-class people move out while upper-income people have moved in.

The two biggest reasons for this, all experts agree, are the rising cost of housing and the perception that San Francisco public schools aren't worth the money it costs to live here. But quality of life issues matter too, with so many costs being put on the backs of lower- and middle-income people in the City.

According to Lee, working class families spend so much of their income on housing and an increased cost of living that they can't always afford their own health care, or daycare for their children, or vacations out of town.

"We live in a city where we have this weird tension, a built in tension of being in a hot real estate market city, where the real estate market is really good," Lee explained. "That means city government gets the benefit in terms of revenue. But being a hot-real-estate-market city causes social problems. (Middle and lower income) people can't afford to live here and families are spending much more of their income on housing and a rising cost of living. The economics are squeezing the middle and lower classes. The city government has a responsibility to fill in the gaps with child care and housing subsidies."

According to census figures, the City has lost many of its middle class residents and minorities in recent years, including a dramatic drop in the number of African Americans that are able to call San Francisco home. Critics say the city's tax, fine and fee structure is regressive in nature, hurting poorer residents the most because the charges take a larger, more disproportionate chunk of their money.

There has been more than a 33 percent reduction in the number of children living in the City since 1960. Andreas, the owner of the Boom Boom Room, suspects people like him will have to foot the ever-increasing bills to provide city services.

"I have to raise prices to meet the cost of increased fees and taxes. That alone is a wash for me," he said. "If I have to raise the cost of a beer $2 to meet the cost of increased fees and taxes, I don't think you're going to have many people who are going to buy four or five beers over the course of a night. You're going to kill the entrepreneur by taxing the crap out of them."