Budget Bits No. 6 – Our First Take on The Mayor’s Proposed Budget

Yesterday, Mayor Schaaf released her proposed budget with a televised press conference and a “Budget Beer Bash” at Oakland’s Linden Street Brewery. The budget will be presented to City Council on Tuesday, May 5 at 5:00 p.m.  It must ultimately be passed by Council, and will be the subject of much debate, and almost certainly significant amendment over the next two months. Make Oakland Better Now! will be diving deeply into its almost 400 pages and publishing a good deal of analysis in the coming weeks. But here are some of our first impressions: Continue reading

Budget Bits No. 5: Unfunded Pension and Healthcare Liabilities

This is the fifth installment in our series on the 2015-17 budget process, and the last one before the mayor’s budget is released today. Once the proposed budget is released, we will start discussing that document, first with a general summary, then a deeper look. For now, we take a brief look at the oft-discussed subject of pensions.

In any budget process there are many competing interests. Resolving these conflicts and arriving at a balanced budget is more art than science, involves trade-offs, and in the end, always involves prioritization. So what are some of the biggest priorities, aside from police, fire and other core city functions? Pension and retiree health care shortfalls have been the subject of much public attention. They were the subject of a City Auditor’s report about a year ago, a detailed report by the administration to Council in January of last year, and State legislation (the Public Employees’ Pension Reform Act of 2013, or “PEPRA”, more discussion here)  in 2012.

The general sense of the discussion in Oakland has been that

  • The closed police and fire pension plan (“PFRS”) will start requiring very significant annual General Purpose Fund contributions (probably about $34 million and climbing) in 2017-2018,and continuing through 2026;
  • The City’s “Other Post Employment Benefits” (“OPEB”), by which the City pays retirees a fairly modest medical benefit reimbursement is paid on a pay as you go basis. It presently runs just over $20 million per year, and is projected to hit over $35 million in ten years and almost $50 million in less than twenty years.
  • Much like other California municipalities, Oakland faces hundreds of millions of dollars in underfunded pension liabilities for its active employees, and serious State law constraints on steps that would reduce costs.

Continue reading

Budget Bits No. 4: The Matter of Deferred Capital Expenses

This is the fourth installment in our series on the 2015-17 budget process. The mayor’s budget is scheduled to be released on Thursday, so between now and then, we’ll summarize some of the observations in the city’s recently published Five-Year Fiscal Forecast, which help set context for the budget decisions to be made over the next two months. In this post, we look briefly at the City’s severe deferred capital problem.

Anyone who lives, works, drives, rides a bicycle or walks in Oakland knows something about our city’s deferred capital expenses. This problem is readily apparent from the horrible state of our streets and sidewalks. According to the Public Works Department, Oakland has 806 miles of streets and 1,120 miles of sidewalks. As the City acknowledges, the streets are on an 85 year resurfacing cycle, compared to the industry standard of 25 years. And (again, according to the City), 38% of the streets are in good condition, 38% fair, and 23% poor condition.

The Metropolitan Transportation Commission’s recent evaluation of Bay Area city streets paints a bleaker picture. MTC assigns a point value, or “Pavement Condition Index” (PCI) score to cities. This year, MTC assigned a 59 PCI to Oakland. This means the streets are “at risk,” a designation when the city has  “[d]eteriorated pavement requiring immediate attention, including rehabilitative work.”

But the issue of deferred capital expenses goes well beyond streets and sidewalks, and includes storm sewers, technological enhancements, buildings and facilities, including the Police Administration Building, which is in terrible condition.

The Five Year Forecast projects an average of $9 million per year for capital projects, and also states that there are projects that total $1.5billion that are key unfunded capital needs, that is, capital projects that are not included in the annual budget. Given that the average forecast total for all fund revenues over the 5 years is a little less than $1.2billion, that is like telling someone who makes $70,000 a year that they will need to a $70,000 repair on their house. And, like the homeowner who needs to make the repairs, the most likely source for Oakland to fund these projects is either to borrow the money (that is, issuing bonds)or to ask for help from the relatives (that is, go to the voters with a special parcel tax request). Let’s look at the projects listed in the Five Year Forecast and decide what needs to be done, and how to do it. The project categories and projected costs are these (and we would like to see a great deal more detail than appears in this table, or in the forecast):

Key unfunded capital needs

When then-Mayoral candidate Libby Schaaf was campaigning, she promised that if Measure BB passed, she would “bond against the new $8 million per year allocated to Oakland for road maintenance to make immediate upgrades in road conditions that will reduce maintenance costs going forward.” This is an important part of the plan for catching up. But there will undoubtedly have to be more.

The next steps for the city government is to prioritize the above projects, determine which to move forward with most quickly, and develop a plan for doing that.

BUDGET BITS NO.3 – WHERE DOES OAKLAND’S MONEY COME FROM (Part 2)?

This is the third installment in our series on the 2015-17 budget process, and the second concerning revenue projections in the Five-Year Fiscal Forecast. The mayor’s budget is scheduled to be released on Thursday, so we’re covering this to provide some  context for the budget decisions to be made over the next two months. As we did in the last post, we summarize the Forecast’s discussion of revenue sources, limitations on those sources and projections for revenue.

It isn’t unusual at citizen budget discussions to hear a proposal that wealthier Oaklanders pay taxes at a higher rate. Although this concept is attractive to many – possibly most – people, the suggestion highlights one of many limitations on the City’s ability to levy taxes.  Among those limitations: a California city can’t impose an income tax, or any other tax based on the income or wealth of the people who pay it. Moreover, Proposition 13 limits ad valorem  property taxes. The baseline is 1% of assessed value of property. Beyond that, the City can impose an ad valorem property tax to cover obligations incurred before 1978 (as Oakland does to provide an income stream to partly fund its long-closed Police and Fire Retirement System),  plus an assessment for certain bond measures authorized by two thirds of the voters. The assessed value starts at the sales price of the property, and cannot grow by more than 2% as long as the same owner holds the property.

And much of the baseline property  tax for Oakland properties doesn’t go to the City of Oakland. Although not discussed in the Five Year Financial Forecast, our research has shown that only 26% of the Proposition 13 baseline property tax on Oaklanders goes to the City. Oaklanders’ property tax bills contain a large number of parcel taxes and other special assessments, some supporting police, fire, libraries and other typical city services. Not all of these are city assessments.  Nearly all require a 2/3 vote, and they cannot be based on income levels.  Continue reading

BUDGET BITS NO.2 – WHERE DOES OAKLAND’S MONEY COME FROM (Part 1)?

This is the second installment in our series on the 2015-17 budget process. The mayor’s budget is scheduled to be released on Thursday, so between now and then, we’ll summarize some of the observations in the city’s recently published Five-Year Fiscal Forecast, which help set context for the budget decisions to be made over the next two months. For this and the post that follows, we summarize the Forecast’s discussion of revenue sources, limitations on those sources and projections for revenue. 

As a starting point, remember that the city budget consists of the General Purpose fund – the fund over which the city has the most discretion in spending – and all other funds, many of which are restricted due to their source (e.g., grant funds designated for a specific purpose), City Charter restrictions (e.g., the 3% of the general purpose fund that must be assigned to Office For Children & Youth under the Kid’s First! Charter amendment) or other reasons. There is a tendency for the city to look at the General Purpose Fund budget and “All Funds” budget separately, and they do so in the Five Year revenue forecast.  Here’s how the city is calling General Purpose Fund revenues for the next five years:

Table 10

And the City projects that one way or another, about half its General Purpose Fund revenue is related to real estate values:

Budget pie chart

Meanwhile, all funds projections look like this:

Table 11

Note, however, that the rows for “Interfund Transfers” and “Transfers from Fund Balance” don’t reflect real income.  They are just transfers between accounts.  With this in mind, we think the actual projected totals, and growth rates, should look like this (in millions):

All Funds — Revenue in Millions FY 2014-15 Midcycle Adopted Budget FY 2015-16 Forecast FY 2016-17 Forecast FY 2017-18 Forecast FY 2018-19 Forecast FY 2019-20 Forecast
Total  $1,148.69  $1,133.79  $1,149.63   $1,174.77  $1,202.58   $1,227.88
  ($251.72)  ($158.65)    ($159.68)  ($159.72)  $  (162.17)  ($164.06)
Revised Total     $896.97     $975.14  $989.95 $1,015.05  $1,040.41  $1,063.82
Growth Rate 8.71% 1.52% 2.54% 2.50% 2.25%

Overall, the projected numbers are positive: General Purpose Fund revenues are projected to rise between now and 2020 from over $491 to $543 million, and the jump is bigger if you take out the transfers. If the forecast is accurate, it represents the first multi‐year period of revenue growth since before the 2008 recession.

In a post tomorrow, we will look at some of the limitations on revenue sources.

Oakland Budget Bits No. 1 — The 2015-2017 Budget: What’s Happened So Far, and What Happens Next?

As it has in the past several budget cycles, Make Oakland Better Now! will be providing Oakland residents with tools to help understand the city budget.  In the forthcoming “Oakland Budget Bits” series, we will try to present – as concisely as possible—a guide to the process, the challenges, the priorities and the decisions that evolve as Oakland’s mayor, City Administrator and City Council move toward adoption of the 2015-2017 two-year budget. Here, in Bit No. 1, an introduction to the process. Continue reading

THE SWANSON REPORT ON POLICE DISCIPLINE: WHAT DOES IT MEAN, AND WHAT HAPPENS NEXT?

Yesterday, attorney Edward Swanson filed his report on what he referred to as a “broken” police disciplinary process to Judge Thelton Henderson. The report is available here, and media reports are here (East Bay Express), here (Oakland Tribune) and here (San Francisco Chronicle).  In this post, we will talk about the background leading up to the investigation and report, where Swanson points his finger (and where he doesn’t), his recommendations, and what they mean for Oakland.

Background

Oakland and its police department have been under Court supervision under the “Negotiated Settlement Agreement” (or “NSA”) in the case of Delphine Allen, et al. v. City of Oakland since January, 2003.  For twelve years, the City has struggled to bring itself into compliance and end Court supervision.  Meanwhile, the Court-appointed monitor, Robert Warshaw, has continued to expand his reach, recommending many departmental changes that go far beyond the language of the NSA. The process of arbitrating police discipline matters arises both out of Section 9.10 of the City Charter (something Swanson did not mention) and the Memorandum of Understanding (or contract) between the City and the Oakland Police Officers Association. The results, although not the process itself, have been under Judge Henderson’s scrutiny for several years. The first time was in September of 2011, when Judge Henderson expressed the belief that something was not right with the arbitration process. An arbitrator had reinstated Officer Hector Jimenez, whom OPD terminated after he shot and killed an unarmed civilian. In response to the judge’s expressed concern, the City assured the Court that it was going to improve its representation and performance in arbitration proceedings. Three years later, an arbitrator ordered reinstatement of Officer Robert Roche, terminated for alleged wrongful use of force during the October, 2011 Occupy Oakland demonstrations. In response, the judge first ordered Warshaw to conduct an investigation, then ordered the City to contract with attorney (and former Judge Henderson law clerk) Edward Swanson. The Court stated that failure of the arbitration / discipline process “undermines the very objectives of the NSA: to promote police integrity … and to enhance the ability of the Oakland Police Department … [to] protect the lives, rights, dignity and property of the community it serves.” Continue reading