The COVID-19 pandemic is creating financial challenges for all levels of government, and the City of Oakland is no exception. Numerous revenues will decrease, if they haven’t already, as the need for municipal services continues. This downturn occurs at a time when the city was facing very significant financial challenges due to underfunded long-term obligations and the emergence of new challenges such as homelessness.
(Read Berkeleyside’s recent coverage: Looming budget crisis ‘like nothing Oakland has ever before experienced’)
Two important reports outlining the state of Oakland’s finances were recently published. We’ll discuss both reports and what they suggest for our city finances. This post summarizes the two reports and provides more details on the City Auditor’s report. The second post will provide more detail on the Finance Director’s report and the Council reaction at its hearing on April 21st.
These two reports are:
1. City Auditor’s report
“City of Oakland Financial Condition For Fiscal Years 2012-13 to 2018-19” was prepared by the City Auditor before the advent of COVID-19. (Its original objective was “to examine the City’s financial well-being by calculating financial ratios, analyzing trends in the City’s financial data over the past seven-year period, and comparing the results to other cities of similar size.”) But the letter of transmittal does note that the current COVID-19 pandemic will likely dramatically compound the issues raised in this report. It reaches a series of conclusions about the fraught condition of Oakland city finances and recommends corrective actions.
2. Oakland Finance Director’s report
The Finance Director’s new report “FY 2019-20 Third Quarter Revenue & Expenditure Report (Preliminary)” concludes with this stark projection:
In sum, we project that, absent rapid adjustments by the City Council, the COVID- 19 pandemic will result in a GPF budget shortfall over the next fourteen months of approximately $80 million ($26.17 million + $53.78 million).
The report contains a list of a number of actions already taken by the administration and recommends a number of policy considerations for the Council. It states: ‘The point is that – absent an unexpected State or Federal bailout – this problem will not be easily resolved, and it will not be fixed by tinkering at the margins. It will require significant action by City leaders.”
So first, let’s take a deeper look at the City Auditor’s report. Here are some notable excerpts:
- “Oakland does not rank favorably in most financial indicators, when compared to similar-sized California cities.” This is illustrated by 9 Charts that compare Oakland to 7 other similar California Cities.
- “This report does not include information on the condition of the City’s infrastructure, the citywide asset replacement value, or the funding gap for infrastructure needs because the City does not produce an annual citywide capital asset report.”
- “This report prepared prior to COVID-19, however, illustrates the City needs to do more to address its increasing pension and OPEB liabilities, quantify its unmet infrastructure needs, and prepare for the future in which, according to the City’s five-year forecast issued in March 2019, expenses are expected to outpace revenues.”
The report concludes with the following recommendations to City Council to address the City’s unfunded pension and OPEB liabilities:
- Convene a retirement advisory group to gather, evaluate, and organize information for a comprehensive solution to address Oakland’s unfunded pension and OPEB liabilities. This Advisory Group will be tasked with designing a plan to impact retirement liabilities on three levels:
• State/Federal — what legislative changes, if any, are needed to be proposed so that the municipalities may be in better control of their financial future as it relates to pensions.
• CalPERS — does CalPERS serve the needs of all its member agencies and how can Oakland and other municipalities have a greater impact on CalPERS policies.
• Oakland — what changes may be made now within the restrictions of CalPERS and State Law, and which of these changes can be agreed to by all stakeholders.
This process should be convened publicly and have clearly defined processes for stakeholder input, including citizens, unions and employees. The Advisory Group should be comprised of a broad cross section of stakeholders, for example, the City should strongly consider including:
• Academia and pension/OPEB experts.
• An independent financial consultant with no ties to the City to perform
analysis on potential reforms as they are recommended by the Advisory Group.
• An independent law firm with no ties to the City to evaluate the legality of potential reforms as they are recommended by the Advisory Group.
- Form a coalition of cities to find common ground to support comprehensive solutions at the State level and CalPERS.
- The City’s Finance Department should provide the City Council with an annual analysis of how the City’s long-term financial position could be strengthened.
- The City should develop a reserve policy that is consistent with the GFOA recommendations to maintain unrestricted budgetary general fund balance of no less than two months of general fund operating expenditures.
- The City should have a centralized report of fixed assets to be able to monitor changes in the condition of the assets and evaluate cost associated with maintaining and repairing them.
We welcome your thoughts. What do you think the City should do to respond to the immediate and long-term challenges facing Oakland City finances?