What's Going on with Oakland's Budget?

Date postedDecember 8, 2024
Educate, Inform,

The city is in the midst of one of the most financially difficult periods in Oakland's history. With a projected FY24-25 deficit of $129.79 million, There needs to be public clarity around the budget situation addressed in a more timely way.
  • Oakland's financial report from the 4th Quarter of the 2023-24 Fiscal Year revealed that our City spending exceeded revenues by $79.4 million despite preemptive actions by the City Administrator earlier this year to cut spending.
  • Last month, the Finance Department provided a report on 1st Quarter financials for the current 2024-25 Fiscal Year that projected a $93.08 million year-end operating shortfall. The City's year-end General Purpose Fund (GPF) deficit for FY24-25 is now projected to be $129.79 million.
  • In addition to these immediate budget cuts, Oakland will have to address a structural deficit in the upcoming FY 2025-2027 budget cycle and close a gap of $280 million.
  • The City has only received $5 million in Oakland Coliseum sale payments to date out of the anticipated $125 million. Since the Coliseum sale was tied to the City budget this past year (a decision I was very vocally against), the change in payment schedule has necessitated over $63 million in cuts under the Contingency Budget triggered by these missed payments.
  • Our Finance Department warned the Council since January that our financial situation and risky decision to incorporate the anticipated Coliseum sale into our budget had a strong risk of leading to a downgraded credit rating – one of the many reasons I voted against the budget. Last week, Fitch Ratings officially downgraded Oakland’s credit rating by two notches, and revised its Rating Outlook to Negative from Stable.

The City Administrator has issued a series of recommendations for immediate budgetary cuts and cost-saving measures totaling $104.2 million that will be discussed at the December 9th meeting, including:

  • Browning out (temporary closure) of two Fire Stations
  • Canceling two OPD police academies currently scheduled for 2025
  • Reducing OPD overtime spending by $25 million, including by eliminating certain OPD Special Units
  • Temporarily un-restricting certain funds, including from the City’s self-insurance fund (which covers city litigation expenses), Affordable Housing Trust Fund, and Sugar-Sweetened Beverage Tax Fund

For the remaining $15.97 million in cuts needed to balance the budget, the City Administrator has proposed the following options:

  • Cutting 92 full-time non-sworn employees across City departments and browning out four additional fire engines, OR
  • Holding discussions with Labor partners to identify viable alternatives, OR
  • Declaring a Fiscal Emergency and utilizing emergency reserve funds

The City Administration has noted a few of the cuts they have already made (without needing Council approval), including a hiring freeze that has been in effect since March 2024, reduced funding for the Oakland Film Initiative, reduced funding for IT cyber-security, and ending of the “Five After Five” downtime parking program.

Oakland Budget FAQ's

Are there possible options for generating new revenues?

  • A potential ballot measure for a half-cent Sales Tax increase will be discussed by Council at the meeting on Tuesday, December 17th at 3:30 PM
  • If approved, this measure would be expected to raise $21.2 million next year
  • The earliest implementation of this measure would be in April's Mayoral special election, which would allow funds to become available starting in FY 2025-26.
  • In the report issued by the Finance Department prior to this Monday's special meeting, the Department stated that they will "seek opportunities for economic development, pursue state and federal funding where available, and explore innovative approaches" to generate additional revenues for the City

Is the City currently in a Fiscal Emergency?

  • Although a Fiscal Emergency has not formally been declared, Oakland's Finance Department has determined that the City has met the requirements of extreme fiscal necessity and may already be at the stage of fiscal emergency
  • The Finance Department states that this crisis is the result of continued over-expenditures and an ongoing structural imbalance dating back to 2020
  • A Fiscal Emergency would be officially declared if the use of Emergency Reserves is authorized by City Council to sustain General Purpose Fund operations and maintain basic public health and safety

When will revenues from Measure NN to support public safety become available?

  • Oakland voters recently approved Measure NN in this past November's election, which will provide public safety funding from parcel tax adjustments
  • Measure NN is expected to raise $47.4 million beginning in FY25-26, which would not be available until FY 2026
  • This will raise $16.27 million more than previous public safety initiative Measure Z
  • However, Measure NN revenues are not flexible and are restricted to specific uses

Does the City have reserves to help us?

  • While the City has close to $70 million in its GPF Reserves, the unassigned fund balance in the GPF is currently -$47.8 million, which has reduced reserve funds to just $22.3 million - or one-third of the reserve requirement
  • Although the City could opt to lower its reserve requirement to reduce the shortfall between Oakland's general fund reserves and current reserve requirement, this would not address the imbalance between the GPF expenditure and revenue imbalance that is responsible for reducing the City's reserves
  • As mentioned, one option for closing Oakland's budget gap is the declaration of a Fiscal Emergency and the use of almost $16 million in reserve funds
  • As of the FY23-24 4th Quarter report, the City holds $37.23 million in emergency reserves, which is 57% of the required reserve level of $68.8 million

Is Oakland reviewing all City contracts to make sure they are an effective use of City dollars?

  • Contracts are being reviewed on a case-by-case basis. The Budget Bureau - in collaboration with the Purchasing Bureau - has begun a more comprehensive analysis of contracts for the FY25-29 Biennial Budget.
  • The Budget Bureau initiated the FY25-27 budget development process in September. In Phase I, departments were required to submit comprehensive details about all contracts. This information will serve as the basis for a thorough review of contracted services to explore opportunities for consolidation, cost reduction, or improved efficiency in service delivery.

What is the potential impact on Oakland accessing the bond market?

  • The current fiscal crisis could adversely impact the City's ability to access capital markets
  • Negative publicity about the City’s financial status (headline risk) or open discussion of financial insolvency is likely to discourage potential investors from bidding on City bonds
  • Investors who remain in the market may demand unacceptably high interest rates, effectively preventing the City from issuing new debt, which could occur before a rating downgrade happens
  • If a plan to balance Oakland's budget cannot be achieved, the City may be unable to complete existing capital projects or pursue new ones for an extended period, which is highly problematic given that Oakland's ability to borrow is the foundation of its extensive capital plan

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