The void has been filled by higher-than-expected property tax revenues, higher federal reimbursements, and lower spending. Friday’s update was rare good news for the city’s $ 13.1 billion budget, which was hit by the pandemic last year. But the city will likely still have a deficit of more than $ 500 million for the next two years that needs to be bridged somehow.

The Board of Supervisors and Mayor London Breed struggled to fill two massive holes in the fall and winter, but were still able to avoid service cuts and layoffs – whether this will be possible in the next few years is not yet clear. The city has 36,000 employees.

“These are difficult times, but they could be a lot worse,” said supervisor Aaron Peskin. “We fell off a cliff, it turns out to be a shorter cliff.”

Supervisor Matt Haney, chairman of the Budgets Committee, said in a statement Friday that the $ 241 million turnaround from late last year “is a great relief to struggling residents and small businesses of our city who need our help urgently.” rebuild and recover. ”

Although the unexpected flood saves the city in the short term, an uncertain economic future remains, particularly with more permanent shifts to remote working that will likely empty downtown offices and reduce San Francisco’s tax base.

In December, controller Ben Rosenfield predicted the city would run into a $ 650 million deficit over the next two fiscal years beginning in July as sales, hotel and corporate taxes came in below expectations.

The new surplus could bring that deficit down to $ 528 million, unless the mayor and governing body decide to spend it on other priorities this year, the six-month budget report said.

The mayor’s office said Friday Breed intends to use the new surplus “responsibly” to help small businesses support arts and cultural programs and reduce future deficits.

“These revenues are a welcome surprise that will help us manage the immediate effects of the pandemic,” said a statement. “Unfortunately, we do not expect these funds to continue in the years to come and we have a number of difficult decisions to make to avoid layoffs and maintain the city’s services.”

In December, Breed called on departments to propose cuts of up to 10% in the coming budget cycle. The mayor will review all proposals and weigh the compromises against new financial news, said spokesman Jeff Cretan.

Half a dozen supervisors speaking to The Chronicle Friday expressed optimism and a desire to help small businesses and vulnerable residents.

Haney said the city has a COVID-19 reserve fund of $ 507 million to cover deficits over the next two years and expects hundreds of millions more new stimulus funds. He said the city should “reduce wasteful and inefficient spending, but immediately bring money to the residents and small businesses that need it.”

“Our city is still in crisis and this is a time for action,” Haney said. “Many of our residents and small businesses have been told over the past year that, despite their suffering, our city does not have the resources to support them. Now we have the chance to recover now. “

Supervisor Hillary Ronen said she will fight to provide more support to small businesses, artists, low-income families and individuals struggling with mental illness, addiction and homelessness. Supervisor Ahsha Safai wanted to support business fee exemption and a city program that would allow people infected or exposed to COVID-19 to successfully stay at home. Supervisor Shamann Walton named fighting pandemic, homelessness, food insecurity and violence among his priorities.

Peskin supported the immediate relief for small businesses, but also cautioned caution as the amount of federal funding is uncertain.

“You can’t spend it all at once if you don’t know you will get more in the future,” he said.

The budget was boosted by the Biden government’s announcement last month to fully reimburse cities for pandemic-related emergency programs such as testing, personal protective equipment, and emergency shelter like the city’s homeless hotel program. The appointment is retroactive, meaning that all eligible expenses from January 2020 will be reimbursed.

News of the additional federal support once again urged some regulators to expand the city’s homeless hotel program. The city’s homeless department originally planned to end the program last year because FEMA funding would suddenly end. Now the Biden government has assured the city that most of the program will be funded through September.

That news prompted Haney to propose legislation this week that would force the city to bring more people off the streets and into their homes.

Another unexpected bright spot in the budget was funding from Prop. I, the city’s voter-approved 2020 tax increase on property sales valued at more than $ 10 million. The six-month budget report lists increased revenue from this tax of $ 26.1 million.

The measure’s draftsman, Dean Preston, insisted on Friday that tax revenues be spent on the stated purpose: affordable housing and rent relief for those affected by the pandemic.

“As we navigate this budget cycle, we need to make sure our city is delivering for those who are struggling the most in this economy,” he said.

Trisha Thadani and Mallory Moench are employees of the San Francisco Chronicle. Email: [email protected], mallory. [email protected] Twitter: @TrishaThadani