Will The Mayor’s Budget Have a Reserve To Protect Against The Unexpected?

On May 26, and at additional meetings in June, Oakland’s City Council will be considering one or more of the three budget proposals submitted on April 29 by Mayor Jean Quan. Mayor Quan has named the three budget proposals Scenario A (All Cuts Budget) Scenario B (Cuts Plus Savings from Employee Concessions) and Scenario C (Cuts, Plus Employee Savings, Plus Income from a Presumed $80 per Parcel Property Tax).

Make Oakland Better Now! (MOBN!) has combed through these documents, and still has many unanswered questions. The answers may be available, but as far as we can tell, they don’t appear in the budget documents. In our first two posts, here and here, we asked what the budgets told us about City priorities. In the coming days, MOBN! will raise more questions  and try to explain why the answers matter.

A “reserve” consists of money set aside in each year’s budget as protection against unexpected surges in expenses or drops in revenue.  An appropriate reserve is essential to responsible budgeting because not every expense, nor every element of income, can be accurately predicted two years in advance.  Oakland Ordinance No. 12946, Section A.(1), requires that Oakland set aside a reserve of 7.5% of its General Purpose Fund, which may be appropriated by Council “only to fund unusual, unanticipated and seemingly insurmountable events of hardship of the City, and only upon a declaration of fiscal emergency.”

One would expect that in the General Purpose Fund, the required reserve would either be a budget line item, or that the budgeted revenues would exceed expenditures by the required 7.5%.  None of the proposals has a General Purpose Fund reserve line item that we have been able to find.  And here is how revenues and expenditures compare:

Scenario A

2011-12

2012-13

Revenue

$395,187,332

$402,354,163

Expenditures

$395,077,068

$402,221,003

Balance

$110,155

$133,160

Scenario B

2011-12

2012-13

Revenue

$387,187,223

$394,354,163

Expenditures

$387,098,053

$393,446,261

Balance

$89,170

-$92,098

Scenario C

2011-12

2012-13

Revenue

$400,212,788

$410,379,728

Expenditures

$400,272,744

$410,328,505

Balance

-$59,956

$51,223

At a budget town hall on Tuesday night, Acting City Administrator Ewell stated that we would be unable to know what the reserve amounts would be until the City had closed its books for 2010-11, which would likely be this fall.  In other words, if the City finishes this fiscal year with a positive GPF balance, that balance, plus with the minimal positive balance in Scenarios A and B or less the negative balance in Scenario C would constitute the City’s reserve for 2011-12.  Mr. Ewell acknowledged that this was not likely to amount to the 7.5% required by Ordinance No. 12946.  In fact, it seems likely there will be no reserve – and therefore, no margin of error – at all.

The City Council adopted its reserve policy in 2009 as part of the last two-year budget process, and in response to a situation where Oakland was starting a fiscal year with a reserve of only $9 million.  The ordinance requires a 7.5% reserve in the first instance, and allows that reserve to be appropriated only to meet a need which is “unusual, unanticipated and seemingly insurmountable.”  Certainly the City is having a difficult time balancing its budget.  But is that difficulty “unusual?”  Is it “unanticipated?”  If not, is a no-reserve option even legally an option

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3 responses to “Will The Mayor’s Budget Have a Reserve To Protect Against The Unexpected?

  1. I just want to say that I really appreciate what you guys are doing. It’s not easy to follow the twists and turns of budgeting in Oakland. MOBN provides by far the most thoughtful and thorough analyses I have seen anywhere. Certainly far better than anything the Mayor or the City puts out. Many thanks for your efforts.

  2. Thank you Chuck. One of the best things you could do is tell others about what we are trying to do here and urging them to stay current. One of the keys to making Oakland what it can be is waking people out of their slumber. It’s time-consuming, and it isn’t always that much fun, but we think it really is important.

  3. I sent this e-mail and wish to share:
    > From: Nimia Ramos Beauchamp
    > Subject: Oakland Budget Suggestions Ltr to Mayor Quan
    > To: budgetsuggestions@oaklandnet.com
    > Cc: “Adam’s Point Group”
    > Date: Thursday, May 26, 2011, 1:27 PM
    > Dear Ms. Quan,
    >
    > First of all congratulations on your historic
    > accomplishment of becoming Mayor of Oakland. I have
    > lived in Oakland for the past 10 years and find Oakland to
    > be a “well kept secret” of a city. I have also met you
    > briefly throughout the years at various activities held
    > around Oakland.
    >
    > One of the most interesting things about Oakland is that
    > it’s resident’s think out of the box and are “active” in
    > bringing about positive change for a city plagued by many
    > deficiencies.
    >
    > However, one thing I find disappointing, not only from your
    > current administration, but politicians in general is the
    > lack of “ability” (this is a long topic which I’m condensing
    > into a few paragraphs which do the topic little justice) to
    > think out of the box when it comes to economic issues and
    > the budget. We all automatically think about either
    > cutting back services or increasing taxes.
    >
    > In my opinion, those concepts really don’t take much
    > thinking. Plus, I don’t believe there is a need to increase
    > taxes (except for the mega multi millonaires) or cut funding
    > for programs.
    >
    > My question is why don’t we demand from the Federal
    > government less spending on war fare which has factually
    > depleted our reserves and continues to siphon off funds for
    > a world wide devastating machine that serves only the
    > interest of a minuscule elite? That difference in funds
    > would make the world of difference not only in Oakland but
    > across the states in resources for education, health care,
    > retirement and increase in living wages.
    >
    > Why do we continue to talk about tax increase and benefit
    > cuts when we see the devastation that continues to cost us
    > in the short and long run? Can I see someone with guts
    > to mobilize our constituents to demand a withdrawal of
    > troops in the middle east where the cost of one missile can
    > fund who knows how many appropriately necessary and valued
    > social services? (Education, health care and retirement
    > funding)
    >
    > I ask you to think out the box, to continue Oakland’s
    > attitude of let’s do things our way. I don’t expect
    > any immediate results but we can definitely start a movement
    > and I’m sure that we are not alone in thinking that now is
    > the time for some meaningful change; not superficial change
    > and superficial promises that continue to plague our
    > political landscape.
    >
    > Being courageous comes with a cost, not necessarily bad or
    > good, but honestly how much worse can it really get?
    >
    > Nimia Ramos Beauchamp
    > Montecito Ave.
    > Oakland, CA
    >

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