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The Mayor and Administration are expected to release a proposed city budget between April 15 and 20 and present it to council on April 30. After that, the budget will be considered by council at special meetings (all at 6:30 p.m.) on Thursday, May 23, Thursday, June 6 and (for final adoption) Thursday, June 27. This is the second in a series by Make Oakland Better Now! on Oakland’s budget challenges.

Make Oakland Better Now! began analyzing Oakland’s budget in 2009. Soon after that, we publicly stated that our city faced a 2010-11 structural deficit as high as $48 million, including negative fund balances, un-funded liabilities, and deferred capital repairs. We predicted that deficit would climb to $155 million by 2013-14. Before we published this view, we presented it privately with a number of elected officials, whose reactions ranged from surprise to agreement to adamant denial.

Starting last fall, the City Administrator began publishing thoughtful, reasoned reports stating that, considering negative fund balances, un-funded liabilities, deferred capital repairs and other deferred expenditures, the City’s annual structural deficit ranged from $155 million to $159 million over the next five years. This reality check / breath of fresh air is refreshing and encouraging: the first step to solving your problems is accurately identifying them.

On the other hand, we were discouraged to see the letter that accompanied these sobering findings, which announced that Oakland was “in its strongest financial condition in years.” And the press coverage that followed clearly got the message wrong.

The key budget facts right now are these:

• Yes, Oakland’s revenues are up. But this isn’t because of the resurgence of restaurants, small businesses, and other positive economic events. Sure, more restaurants, more small businesses, more nightclubs, etc. are all good things. But what’s driving tax revenue increase in Oakland is (a) the increase in the real estate transfer tax, caused by the increase in housing prices (but not an increase in sales volumes), (b) the increase in gasoline prices (and hence sales tax revenue), particularly gas sold at Oakland Airport, (c) recovery of the retail motor car industry, (d) increases in hotel room prices caused by a shortage of hotel rooms. These aren’t particularly sustainable growth mechanisms.

• Yes, Oakland at one time had more than $80 million in unspent funds from FY 2012-13. But much of that is now either gone or on its way back to Sacramento. $30 million will go toward the City’s reserve. Also, more than $30 million will be going back to the State of California because the state has disallowed Oakland’s funding of its Redevelopment Agency wind-down and post-redevelopment dissolution transactions (including the highly problematic sale to itself of the Henry J. Kaiser Auditorium).

• Oakland’s un-funded liabilities for pensions, medical, accrued leaves and negative fund balances (off-the-books borrowing from one city fund to another) total more than $1.6 billion, as follows:
  • Oakland Municipal Employees Retirement System (OMERS, a closed retirement system): $743 K
  • California Public Employees Retirement System (Cal PERS): $743 M
  • Police and Fire Retirement System (PFRS, closed retirement system): $216M
  • Other Post-Employment Benefits (OPEB, a health insurance premium payment for retirees with at least ten years’ service): $520M
  • Unfunded accrued leaves (unused vacation time which would be payable to employees upon resignation, termination or retirement): $29.5M
  • Negative fund balances: $I05M
  • The projected bill for deferred street and other capital maintenance is a whopping $100 million. The backlog for vehicle and equipment replacement is about $26 million, and there is an average capital requirement of $10.2 million to “keep assets within their economic life.”
  • CalPERS pension costs will be climbing, as will the costs of medical coverage.  We have heard that in the last five years, medical insurance costs for Oakland’s civilian employees climbed an average of 8% per year, and the cost for sworn personnel saw hikes of 10% per year. Until we have a realistic basis for thinking the increased cost of medical care will go down, we need to assume similar increases going forward.
  • And finally comes the price of police. According to the administration, the total cost of bringing the Oakland Police Department back to its historic high level of 833 over five years would be $178 million. The cost of bringing the department to the level required by the OPD strategic plan – 963 – would be $225 million.

Make Oakland Better Now! believes that Oakland’s number one budget priority must be the rebuilding of our dangerously shrunken police department.  Nobody thinks this will be cheap. But we believe the administration has made some unnecessarily pessimistic cost assumptions, and needs to show that it can be a smarter shopper for police and other services. We will be talking about both of these issues in future posts.