July 21, 2021
On June 14, 2021 the City Auditor Courtney Ruby issued a report entitled “City of Oakland’s Financial Condition for Fiscal Years 2012-13 through 2019-20”. This audit, City of Oakland’s Financial Condition, contains a plethora of information concerning the financial condition of Oakland. Much of that information is very sobering. We strongly recommend it as required reading for all who are truly interested in the current and long-term welfare of our city. In this blog we will hit some of the major findings of the audit. A significant part of the report also contains a series of comparisons with comparable California Cities which we recommend you review.
First here is a brief overview of the report with much of the text being direct quotes:
- City revenues for the period from FY 2012-13 through FY 2019-20increased from $827 to $1247 Million.
- Expenses for the same period increased from $784 to $1048 million. With the onset of the Covid-19 pandemic revenues were down while expenses continued to increase. The federal aid provided by the American Rescue Act has allowed the city to maintain its financial stability. “In FY 2019-20, General Purpose Fund expenditures outpaced revenues by $57.7 million. This appears to be attributed to a decrease in revenues due to the COVID pandemic, coupled with an increase in public safety costs. This is a negative change of $69 million from FY 2018-19 and warrants the immediate attention of the City Administration and City Council.”
- “City’s total outstanding bond debt increased 16 percent from $751 million in FY 2018-19 to $870 million in FY 2019-20. This debt increase is the result of the City issuing $185 million”
- “The City’s pension liability increased from $1.655 billion to $1.717 billion between FY 2018-19 and FY 2019-20. On the other hand, the City’s OPEB [Other Post Employment Benefits] liabilities decreased from $841 million in FY 2018-19 to $599 million in FY 2019-20, a 40 percent decrease. This $242 million decrease is mainly due to changes in actuarial assumptions regarding the discount rate and future benefits paid.”
- “The City’s General Fund reserves grew over the first seven years we audited but started declining in FY 2019-20. As of June 30, 2020, the City’s General Fund reserves totaled $55 million, or $90 million less than the Government Finance Officer Association (GFOA) recommends.”
- “We were unable to include information on the condition of the City’s infrastructure, citywide asset replacement value, or the funding gap for infrastructure needs because the City does not produce an annual citywide capital asset report.”
- “Throughout the report, we have compared Oakland’s financial indicators to California cities with similar population size and government services provided. Oakland does not rank favorably in almost all financial indicators when compared to other cities. Each city’s circumstances are different, yet it is important to consider how these cities’ past financial choices can inform Oakland’s future.”
The audit then provides detailed date to support and illustrate the statements summarized above.
Finally, it makes a series of recommendations as follows:
“1. The City Council should do the following 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 and OPEB.
- 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.
2. The City’s Finance Department should provide the City Council with an annual analysis of how the City’s long-term and near-term financial position could be strengthened.
3. 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.
4. 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 repairing, and replacing them.”