A few years ago, the City of San Francisco established a committee to recommend ways to compensate black residents for “systemic, City-sanctioned discrimination that has adversely impacted the lives of Black San Franciscans.” The committee has now issued a report with more than one hundred recommendations, including (most notably) a provision to pay $5 million in reparations to every eligible minority resident in compensation for decades of discrimination at the hands of the city. The criteria for eligibility are yet to be officially determined, but proposals focus on how long a black resident has lived in San Francisco, whether he is a descendant of slaves, and whether he faced displacement by urban renewal projects or segregation in public schools.
The committee did not set forth parallel recommendations that would itemize the revenues needed to pay the reparations and the other items in the report. That will come later, as it always does, after the spending commitments have been made, and after many thousands of residents have been told that they are in line for a financial windfall. They probably believe that the money is there. After all, when Silicon Valley Bank failed, the government found the money to bail out the wealthy depositors. It follows that the money can be found to pay the reparations bill.
Or can it?
How much, then, is this item likely to cost the City of San Francisco? The arithmetic is daunting.
According to the 2020 census, San Francisco has a population of 875,000, of which 5.1 percent, or 45,000, are black residents eligible for reparations payments of $5 million each. This ($5 million multiplied by 45,000) adds up to $225 billion. There may be some black residents who are not eligible for payments, though the city will find it hard to exclude anyone once the promise of reparations has been turned loose. Perhaps only half will be deemed eligible—in which case the sum goes down to about $112 billion. It is safe to assume that total payments will fall somewhere between these sums—in other words, somewhere between $112 and $225 billion to pay the full reparations bill at $5 million per person.
The payments might be stretched out over several years, in which case annual payments will be less (though the recommendation was for a one-time payment). Even so, they are substantial in relation to the city’s revenues.
The city’s budget over the next two years, according to the Budget Commission, is expected to be about $7.5 billion per year in 2024 and 2025, not including federal revenues that come into the city to cover welfare, housing, transportation, and other expenses. San Francisco collects revenue from business taxes, property taxes (1.2 percent of assessed value), a 1.5 percent income tax on residents and non-residents working in the city, and intergovernmental transfers from the state and county. The Budget Commission estimates that the city faces a $728 million shortfall over the next two fiscal years, which will be covered by a combination of tax increases and budget reductions. The proposed reparations bill will dwarf the city’s annual budgets.
If we assume that reparations payments will be stretched out over five years, then annual payments would come in between $22.5 and $45 billion per year, still substantial sums for a jurisdiction spending around $7 billion per year.
Where is San Francisco going to find that kind of money? The mayor and city council could double business and property taxes, which might bring in another $6 billion per year, though even that increase would not come close to meeting the costs of reparations—and it would drive many businesses and property owners away, while crashing real estate values in the process. The city government might borrow the money, assuming that a feckless lender can be found to advance such a sum. Still, at 6 percent annual interest, this might cost between $1.3 and $2.7 billion per year in interest alone, not counting the principal.
These are staggering sums under the most favorable assumptions, and all but impossible for a city like San Francisco to finance. There may be some hope that the costs might be passed on to the federal government and added to its annual borrowings—but there is little chance that the rest of the country could be talked into paying for San Francisco’s largesse. The state might come to the rescue, but California’s budgets are already stretched thin, especially with a possible recession coming along. The prospects for the plan do not look good.
Some might see the whole operation as another form of virtue signaling on the part of some far-left residents who hope to show how much they care and how much they would like to make amends for past offenses while simultaneously being aware that their wishes cannot be paid for. They have made a statement, and that is what matters. The costs are of secondary importance.
If that is so, then the city or the committee may realize that these figures will have to be whittled back to manageable size. Nevertheless, the promises would still be unaffordable if cut back by half or even three-fourths. But cutting back on the promises may cause other problems: having promised $5 million per person, San Francisco will be accused of belittling the issue or even of racism if it tries to scale back the numbers. The city may be stuck with the problem it has created.
Here, then, in the general spirit of the enterprise, is a modest proposal for getting out of it: instead of scaling back the promises, the city might increase it from $5 million to $10 million in reparations for every eligible person. Not paying $10 million per person looks better than not paying $5 million. Both are fantasies, and, in fantasyland, bigger is always better.
In the meantime, other residents may notice that influential segments of their city have lost touch with reality and may soon propose other expensive ideas for them to pay for. Those who legitimately worry about what the future holds might begin to sell their businesses and property before the entire enterprise craters under the weight of onerous taxes and programs that cannot be paid for. That kind of exodus is already underway in California. These sorts of proposals will accelerate it.
That looks to be the future of San Francisco, and perhaps also the future of the state of California, which is considering its own program of reparations, along with a host of other expensive programs. When Walt Disney created his fantasy theme park in Anaheim in 1955, little did he know that it would eventually evolve into a metaphor for the entire state.