City department heads, members of the San Francisco Board of Supervisors, representatives from major news outlets, and others crowded into the Luggage Store Art Gallery at 6th and Market streets on June 1 to hear Mayor Gavin Newsom discuss his proposed 2010-2011 budget.

Colorful artwork, such as a collage fashioned from cereal boxes, adorned the walls, and Newsom said he’d selected the venue to emphasize his commitment to improving the blighted mid-Market area.

Newsom’s $6.48 billion budget is being put forth in the face of a roughly $480 million deficit, which places the city in a similar financial situation to last year, when the mayor’s budget proposal sparked an outcry from progressive supervisors and a wide array of advocacy organizations for its deep blows to public health programs and critical services.

At first glance, the Department of Public Health seems to have fared better this time around, as a partial result of outside funding through federal programs. However, Newsom proposed slashing $22 million from DPH, compared with a total department budget of approximately $1.4 billion.

Newsom’s budget eliminates a total of 993 positions that are filled and unfilled, though the mayor said he anticipated 350 actual layoffs, bringing the total number of city employees to the lowest level in more than a decade. He thanked those he referred to as “enlightened city employees” for wage concessions that made fewer layoffs possible. There were no layoffs in the San Francisco Police Department or the San Francisco Fire Department, Newsom noted. The mayor also announced that an additional $5.9 million would be allocated to remedy the plagued crime lab.

The most contentious issue to emerge from the budget announcement was a proposal to generate $8 million through condo-conversion fees, under a system that would make it easier for people to turn rental units and tenancy-in-common units into condominiums.

Newsom accounted for funding from this proposal despite a lack of support from the Board of Supervisors. “I know the Board of Supervisors can’t stand this,” he said. “But I can’t stand the alternative. … This is a debate that I want to have, because I think this is principled and right." He added that he thought supervisors' resistance to accelerated condo conversions was "so darn ideological that it gets in the way of having a real discussion."

Sup. John Avalos, who chairs the Budget & Finance Committee, said that he and other supervisors fear this could lead to more owner move-in evictions, a trend that would upend tenants’ lives and ultimately deplete the city’s affordable housing stock. “That’s been a concern of mine for months,” Avalos noted. Newsom’s decision to go forward with including it in the budget means that if the Supes reject it, they’ll have to find an additional $8 million to make up for the gap. “It’s kind of like putting a gun to our heads,” he said.

Newsom asserted that the budget was balanced “Without draconian cuts,” saying, “We were able to avoid the kind of cataclysmic devastation that some had argued … was inevitable in this budget.”

Yet Avalos described it as “pretty much an all-cuts budget,” because it contained no new revenue generating measures. “There are no new taxes in this budget,” Newsom said. “I know some folks prefer tax increases. I don’t.”

Avalos said he and other members of the board were working on a number of revenue-generating measures, including a nickel-per-drink tax on alcoholic beverages that would be aimed at the level of distributors, not small independent businesses.

Expect more on the mayor’s budget in coming weeks.