Policies, Principles, and Goals

The FY2022-31 Capital Plan responds to the sudden and dramatic economic shifts that have arisen from the COVID-19 pandemic and the resultant economic crisis. Retaining a focus to be good stewards of public funds and assets, the Plan preserves San Francisco’s longstanding funding principles for capital, with a renewed emphasis on using investments as stimulus for an equitable and strong economic recovery. In addition to the Plan’s funding principles, restrictions around issuing debt and setting funding targets for priority programs help San Francisco to demonstrate its intention to invest responsibly and in the areas of greatest need. The Plan’s policies govern the level and distribution of funds that feed into the Plan while the funding principles show how the funds will be prioritized.

Policies

Pay-Go Program Policies

The Plan recommends a Pay-Go Program funding level based on the impact of the COVID-19 pandemic in the short-term, with an anticipated economic recovery in the longer term: $46.3 million in FY2022, growing at 10% until FY2024, increasing to $110 million in FY2025, and growing by 10% thereafter. This level of investment is significantly lower than pre-pandemic funding levels, and the Plan recommends supporting the Pay-Go program with the issuance of Certificates of Participation in the short-term. This program is the City’s primary source for basic public facilities and right-of-way repairs, an essential function of government that the City is required to deliver.

From FY2015 to FY2020, San Francisco met or exceeded the Capital Plan-recommended funding level for the Pay-Go Program. However, the Program suffered significant cuts as part of the FY2020 rebalancing required to absorb unexpected costs associated with the COVID-19 pandemic. Those cuts were followed with reductions in the Pay-Go budget. The General Fund component of the Pay-Go budget was $47 million for FY2021 and $46.3 million for FY2022, about $100 million less than the previous budget cycle and recommended levels. As capital appropriations represent one-time uses, it is understandable that the City would pull on that source to deliver essential and time-sensitive services. Looking forward, San Francisco will need to again build back up to healthy levels of capital Pay-Go spending to ensure a basic state of good repair for public assets.

Table 2.2

Pay-Go Program Funding	FY22-26	FY27-31	Plan Total
(Dollars in Millions)
Routine Maintenance	82	104	186
ADA: Facilities	8	8	16
ADA: Public Right-of-Way	23	33	56
Street Resurfacing	65	192	256
Recreation and Parks Base Commitment	72	72	144
Capital Contribution to Street Tree Set-aside	31	39	70
ROW Infrastructure Renewal	10	40	50
Facility Renewal	94	324	418
Total Projected Funding	384	813	1,197

 

A direct result of these short-term fiscal constraints is that funding will not be available to meet the annual needs of San Francisco’s aging infrastructure and the renewal backlog will grow. If the City’s economy rebounds at a faster pace than the annual growth envisioned in the City’s Five-Year Financial Plan, the Capital Plan recommends the City reassess the Pay-Go Program growth targets and consider closing the gap to previous funding levels more quickly.

Acknowledging that fiscal constraints in the short term may make these targets difficult to reach in the early years of the Plan, the Pay-Go Program policies recommended by the Plan are:

• The Pay-Go funding level will be $46.3 million in FY2022, growing at 10% until FY2024, increasing to $110 million in FY2025, and growing by 10% thereafter.
• The Street Resurfacing Program will be funded at the level needed to maintain a “Good” Pavement Condition Index (PCI) score of 75. At currently recommended funding levels the PCI is projected to drop to 74 during this 10-year cycle.
• ADA barrier access removal projects and the ongoing curb ramps right-of-way program will continue to be a program priority.

Several voter-determined outcomes over the past two years have affected the Pay-Go Program. Recently approved set-asides for the Recreation and Parks Department and street trees maintenance without associated revenue sources have resulted in restrictions on General Fund spending. These measures have reduced the flexibility of the
Pay-Go Program.

For more information on the Pay-Go Program, please see Chapter Five: Capital Sources.

Debt Program Policies

The policy constraint for the General Obligation (G.O.) Bond Program is:

G.O. Bonds under the control of the City will not increase long-term property tax rates above FY2006 levels. In other words, G.O. Bonds under control of the City and County of San Francisco will only be used as existing bonds are retired and/or the city's assessed property value grows.

Consistent with the 2020 update of the Five-Year Financial Plan, the G.O. Bond Program assumes a reduction in Net Assessed Value of 4.83% in FY2022, and growth of 5.89% in FY2023, 5.92% in FY2024, 4.64% in FY2025, 3.99% in FY2026, 3.37% in FY2027 and FY2028, and 3.38% annually thereafter.

The policy constraint for the Certificates of Participation (General Fund Debt) Program is:

The amount spent on debt service in the General Fund Debt Program will not exceed 3.25% of General Fund discretionary revenues.

Consistent with the Five-Year Financial Plan, the Plan assumes that General Fund discretionary revenues grow 16.75% in FY2022, 8.39% in FY2023, 5.48% in FY2024, 3.99% in FY2025, 3.94% in FY2026, and 2.7% annually thereafter.

General Policies

The Capital Plan uses the Annual Infrastructure Construction Cost Inflation Estimate (AICCIE) approved by the Capital Planning Committee for the first two years of the Capital Plan. For this Plan, that figure is 3.50%. Thereafter, the Plan assumes an annual escalation rate of 5.0% unless otherwise noted.  The City uses a revolving Capital Planning Fund primarily to support pre-development of projects for inclusion in bonds with the expectation that these funds will be reimbursed at bond issuance.

Departments with major building projects within the Plan's time horizon are expected to develop estimates of the impact on the City’s operating budget. Those impacts appear in the Plan to the extent they are known at publication and are discussed as a standard component of requests made to the Capital Planning Committee. Operating impacts are also considered during the City’s annual budget development process. The financial impact of operations is not recorded in the Plan, but is addressed for major projects in the City’s Five-Year Financial Plan.