Of all the problems with Oakland’s current budget discussions, here are the two problems that may be the most profound. The city has no meaningful reserve to fall back on if the economy gets worse. And nobody is even discussing a long-term plan. All of the current discussion surrounds just one question:
“How do we close the budget gap for this fiscal year?”
So here is a discussion of the two questions Oaklanders ought to be asking:
Question 1: What if things get worse?
We all hope that housing prices will increase, that real estate transfers will pick up, and that consumer confidence will strengthen. But what if they don’t? What is the city’s plan then? Pretty clearly it doesn’t have one. And hope, as they say, is not a strategy.
Right now, Oakland has a reserve policy requiring a general purpose fund surplus of 7.5%. But there are a couple of exceptions:
“If in any fiscal year the General Purpose Fund Reserve Policy is not met, the City Administrator shall present to Council a strategy to meet the General Purpose Fund Reserve Policy.”
“The amounts identified as the General Purpose Fund Reserve may be appropriated by Council only to fund unusual, unanticipated and seemingly insurmountable events of hardship of the City, and only upon declaration of fiscal emergency. For the purposes of this Ordinance, “fiscal emergency” may be declared (1) by the Mayor and approved by the majority of the City Councilor (2) by a majority vote of the City Council.”
So, in other words, the city must set aside 7.5% of the General Purpose Fund as a reserve unless it doesn’t, and then the City Council has to look at a strategy. And it can only spend the reserve if there is a fiscal emergency, and there is a fiscal emergency when the City Council, or the City Council and mayor, say there is.
The results of that policy are pretty predictable: the adopted 2010-11 budget has a General Purpose Fund surplus of only $9.8 million. That’s 2.3%. And that’s the City’s entire margin if it has unexpected increases in expenses or decreases in income.
Our larger, more famous and often more dysfunctional neighbor across the bay does one thing that Oakland could learn from. San Francisco has a mandatory “rainy day reserve fund” requirement, enacted by its voters as a charter amendment, Proposition G, in 2003. Proposition G, which passed with 70% of the votes, is now Section 9.113.5 of San Francisco’s City and County Charter, and provides that:
- In any year when the City projects that it will collect over five percent more money than it collected in the previous year, the City must allocate half of this money to a Rainy Day Reserve fund, one quarter to capital and other one-time spending, and one quarter to unrestricted use.
- The City can use the Rainy Day Reserve Fund only when it collects less money than in the previous year. The City can spend up to half the money in the Reserve to make up for this shortfall in revenue.
There are some adjustments for inflation, for new taxes or fees (or reductions in taxes) and a maximum reserve amount (10% of the General Purpose Fund).
Should Oakland have a mandatory Rainy Day fund? Should the charter or an ordinance prescribe how the fund accumulates and limit how it is spent? Why allow the mayor or city council to use one-time revenue sources to balance the budget? Aren’t these questions that deserve consideration by Oakland’s voters?
Question No. 2: What about the future?
Without a dramatic change in spending, by fiscal year 2013-14, Oakland will be looking at the following increases in annual expenses, at a minimum:
- Increased Public Employee Retirement contribution: $50 million
- Net increase police services salaries: $12 million
- Increased Kids’ First contribution: $ Unknown
- Increased employee health care costs: $ Unknown
And we know that the City has $32 million in negative fund balances for which it has no repayment plan other than wishful thinking (e.g., payment with one-time revenue sources, which are all being used to meet operating expenses).
Since June, 2008, Oakland policy has required that a five-year financial plan be provided to Council October every other year. But there is no five-year budget. The five-year financial plan is not in the adopted budget (warning – very large pdf document), and we haven’t been able to find it on the city’s web site.
Don’t Oaklanders deserve effective, honest and transparent long-term budgeting and management processes based on real conditions on the ground? From the standpoint of good government and just plain common sense, why shouldn’t we have a five-year budget, based on city functions, with regular updates to show Oaklanders whether the city is or is not meeting it’s long term goals?
Looking for more to read and watch? The City has recently posted a “Budget Information Sheet” here. It put up a new version of the interactive “Oakland Budget Challenge” here (although the “challenge” scarcely lists all the options). And there’s a full half hour video of a budget discussion meeting involving the mayor, City Administrator Dan Lindheim, Budget Director Cheryl Taylor, Finance Director Joe Yew and other members of staff here.
 Note that the estimate for this annual payment, starting 7/1/11, was $40M as of 12/15/09. But the number is a volatile one. Outside contractor Bartels & Associates estimated an annual cost of $56M in March of last year. The City is considering use of its bonding capacity for some of this; bond issuance would help the cash flow but increase Oakland’s annual expense for debt payment.
Some of the Make Oakland Better Now! board members thought this was less a tasty pastry than an awfully heavy meatloaf. Maybe so. But now that you’re done, go ahead. Treat yourselves to a blueberry cheese puff from Lady Fingers Bakery. And once you’re done, don’t forget to come to the Make Oakland Better Now! meeting on Saturday, June 19, 3:00 – 5:00 p.m. at the Rockridge Branch Library, 5366 College Avenue. We’ll be formulating our strategy for what positions to take before the city council’s special budget meeting on June 24, and we really need your input.
This Post Has One Comment
preliminary five year budget.
if the city had wanted to hide it, they couldn’t have done a better job. But then it’s barely legible.
Then look for drop down menu for attachments. Very fancy.
Then click on the last view attachment pdf , then appendix B
We need the excel version and notes on all assumptions to evaluate this.