In 1996, Oakland established financial policies intended to bring sound financial practices to the City’s budgeting process. Specifically, the policies required the City to maintain a reserve against disasters of 7.5% of the general purpose fund. The policies also were designed to avoid the spending of one-time revenues on recurring expenses. Why? Because ongoing expenses are just that – ongoing. When they come due again the next year, one-time revenue won’t be there to pay for them anymore. For this reason, Oakland’s financial policy since 1996 has limited the City’s ability to spend one-time revenues on recurring expenses without declaring a fiscal emergency.
In particular, the policy has limited the City’s ability to spend more than $40 million in Real Estate Transfer Tax (“RETT”) revenue for ongoing expenses. This policy recognizes that the excess RETT – a percentage tax on real estate sales – is one of the most volatile and undependable revenue sources, and should be treated as one-time revenue. Instead, under the policy, excess RETT was to be devoted to increasing reserves, paying pension obligations and repaying negative fund balances.