Oakland’s Annual Budget Deliberations Start – Can Oakland Finally Establish A Rainy Day Fund?

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.

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