We can balance Oakland’s budget without selling the future
Seven actions could save the city $200M per year without wage cuts, pension cuts, selling city assets, or gutting public safety
Note: you may also like our podcast discussing the key findings of this article.
Behind Oakland’s intended sale of the Coliseum is a harsh reality: it doesn’t solve the city’s financial crisis. If the deal pans out by May 2025 as hoped, it only covers the deficit for this fiscal year. At current spending levels, we will face a new deficit of approximately $100M in the next fiscal year starting July 1, 2025—only a month after the Coliseum deal is targeted to close.
For two months, Mayor Sheng Thao and members of the city council promoted the sale to the African American Sports & Entertainment Group (AASEG) as a way to avoid budget cuts. But that plan shifted this week with a renegotiated contract that delays the payment schedule. The delay forced the city to activate severe contingency cuts, the very cuts it was supposed to avoid by rushing the Coliseum sale process.
These cuts primarily target public safety services. Police staffing has already fallen to 685 sworn officers as of September, with 85 more slated to be cut, resulting in a total force of only 600 sworn officers. That number is 78 less than the minimum mandated by Measure Z, and 400 less than the 1000 officers Oakland would have if it maintained the national average of officers per capita. The contingency plan also cuts four police academies, four civilian police staff, and 63 sworn and civilian fire staff—all such cuts are on top of the 172 police and fire positions cut and frozen in the baseline FY24-25 budget.
The city’s narrative is that sale of the Coliseum is its only budgetary salvation; it was either that or lay-off massive numbers of public safety staff.
But that narrative is flawed, and it dodges fiscal reality. While pushing it on the public, the city has burnt precious time it could have used to find sustainable solutions to our fiscal problems through open discussion with the city council, the public, and labor. The lost time and lack of fiscal discipline now threatens the city’s fiscal solvency and public safety.
None of this had to happen. The city Finance Department has been warning about the ongoing deficit since 2021. And a closer look at the city’s finances shows there were and still are other options. They don’t involve wage give-backs, nor one-time fire sale of major assets, nor wild risk taking that could put the city in bankruptcy within a year.
What other options does the city have to address the deficit?
While the Mayor focused the administration’s resources on selling assets, the city council spent its time trying to squeeze trivial amounts of cash from parking meters and more aggressive tax collection. But these factors add up to a few million dollars at best, nowhere close to addressing the hundred million dollar deficit. Unless there is a dramatic positive swing in real-estate transaction value and volume, there is little the city can do to raise revenues in the present budget year. Revenue growth is a long-term strategy.
On the other hand, there are several significant cost-saving options available to the city now. None of these have been mentioned by the Mayor or the Council, let alone considered.
Control wage and benefit growth to match inflation. The city has grown wages faster than inflation for the past ten years (2% faster annually). Stopping this practice could save the city roughly $20M per year, and would not demand any give-backs from city employees.
Refinance the CalPERs pension debt. Oakland’s CalPERS Unfunded Actuarial Liability (UAL) was $1.9B as of last year and we’re paying 7% annual interest on it. That could be refinanced with a municipal bond at around 3.5% annual interest. The city has the capacity to do this within its statutory debt limit of $3B because it presently has $600M of debt on the books. This could save about $45-65M per year.
Use the Pension Tax Bond pension surplus in 2026 (about $350M) to pay down the CalPERS pension debt. This would save about $20M per year.
Renew the Pension Override Tax. This tax expires in 2026 with the close-out of the PFRS obligation. The city may be able to redirect it toward the CalPERS pension Normal and UAL payments (likely requiring voter approval). It would have a neutral tax impact for residents because they are already paying that tax to cover PFRS payments. This would free $90-100M per year from the city's general budget.
Cut the MACRO program. It has failed to deliver on any of the 5 goals that were set for it. This would save $10M per year.
Intensively scrutinize the grants and contracts paid to non-profits. For example, the City Council in December 2023 overrode all procurement policies to award $450,000 to a church in West Oakland without even a written proposal of what they were going to do with that money. The money was allocated from Measure Q. It is unclear how much waste there is in these contracts because they have not been audited.
Cut back on the large increases in city administration costs which have grown 62% since 2020. This could mean tens of millions of dollars of savings.
Altogether there is about $200M per year of savings that might be achieved, allowing the city to sustain, or even improve, essential safety and infrastructure services. Of course, some of these ideas may not work out to the degree we anticipate here. But if the final tally is only half of the potential savings, it would solve the city’s present deficit without slashing public safety to intolerable lows. Any responsible council and administration should be urgently assessing if and how to make these options a reality.
Is cost cutting the only option? How can the City increase annual revenues?
During the city council’s June budget meetings, Council President Nikki Bas routinely discussed an abstract goal to “improve and diversify our revenue.” As an example, she highlighted the progressive business tax she wrote in 2022, which raises taxes on corporations located in Oakland. But such an approach does not diversify revenue from a base already dominated by business taxes, and it is inherently short-sighted. Constantly raising taxes on businesses does nothing to grow or attract the businesses that are a primary source of the city’s revenue. Likely, the business tax has had the opposite effect.
General Purpose Fund revenues in the city have fallen in real-dollar terms since 2020, because Oakland’s economic activity has been shrinking. Given the period of significant economic expansion nationwide, it is disingenuous to claim that Oakland’s antagonistic stance toward business has had no influence on this stunted growth.
Sustainable revenue increase depends on business growth, which puts money in residents pockets and catalyzes broader economic expansion. That ultimately puts more money in the city coffers, without excessive taxes.
Moreover, attracting and growing business will take time, even in a hospitable city business environment. The city can't wave a magic wand and instantly create new businesses and corresponding tax revenues in a few months. Therefore, revenue expansion is largely irrelevant to the immediate budget problems, but it is deeply consequential to ensuring a stable budget five-plus years into the future.
To grow business, the city must reduce Oakland’s exceptionally high crime rate which is intensely concentrated on small retail businesses, and which is taxing the resilience of large ones. It must stop punishing small businesses for being victims of crime. For example, the city currently charges businesses for boarding up broken windows after break-ins, and fines them for not cleaning graffiti off their properties. And the city needs to attract big corporations to locate in the city. Corporations are the biggest employers that pay the biggest salaries and are the largest philanthropic contributors to communities.
In the immediate term, the city can require employees to return to in-person work to maximize efficiency and customer-service. While the city’s manual laborers (e.g., public works and public safety employees) have been at work throughout the pandemic, the office workers still don't come into city hall. That is destructive to city services (many of which aren’t even open five days a week due to lack of in-office staff), destructive to the trades that depend on city permitting, and destructive to small businesses who need those thousands of city of workers downtown where they will buy food and products from their retail storefronts.
Having those thousands of workers downtown everyday could rejuvenate life downtown and the businesses that depend on it, while helping deter crime. That would also attract more businesses to the city. Having five-day-a-week services staffed by in-office employees would also greatly improve city service delivery with rippling benefits across the city.
Could the city beat the deal offered by the AASEG?
Selling to AAESG may not be a bad option, but we don’t actually know if there were better ones. The deal is being negotiated under duress without a competitive bidding process.
Most certainly a formal process would have delivered multiple bidders on the Coliseum complex, which sits on 112 acres in the center of a major metropolitan area with an arena and stadium, direct access to public transport, a freeway, an airport, and waterfront. That possibility was discarded in 2021 when the city council approved exclusive negotiating rights to AASEG without a competitive process. Were the city not treating the Coliseum as a budgetary gap filler, it could have reopened the competitive option because AASEG’s exclusivity period expired on July 25, 2024.
Competitive bidding often takes several years time. That time would have allowed a proper land-use planning process and submission of development plans by bidders, removing much of the present uncertainty hovering over the AASEG deal. That time would also reduce risks for all parties by allowing resolution of multiple legal and statutory issues, including lawsuits against Alameda County and against AASEG.
How did we get in this predicament?
The city’s fiscal problems were noted by the Finance Department in 2021, when they projected an approximately $100M deficit every year through 2026. The City warned again of the severity of the deficit problem in November 2023 and in March 2024, with the deficit increasing to approximately $175M.
Sheng Thao has been a city leader since 2019, first as a council member, and now as mayor for nearly two years. Despite these repeated warnings from the city administration itself, she has done nothing to address the city’s long-term structural deficit.
The same is true of council president Nikki Bas, also in office since 2019. For the past two years, she has been both president and Rules Committee chair, with the power to direct the council’s side of the budget process. But she also failed to proactively address the well-documented deficit problem.
Both leaders could have and should have started the city’s problem solving process and engagement with labor, the Budget Advisory Commission, and community in November 2023 when the city’s Finance Department issued its dire forecast.
Instead, Thao provided a budget only at the end of May this year, three weeks late with a broken budget process that did not provide the normal two-month timeframe for public discourse or council deliberation.1 Then the council caucus of Nikki Bas, Carroll Fife, Kevin Jenkins, Rebecca Kaplan and Dan Kalb rubber-stamped the approval of the budget under the credulous assumption that we had no alternatives. They justified the action by claiming the city is a victim of causes that date back 46 years to Prop 13, the prior mayor’s decisions, and even to capitalism itself.
As a result, we have a questionable budget that suspends voter-approved use of tax measure funds for the second year in a row, and diverts them from their intended purpose to plug operational deficits. We have a rushed and risky fire-sale of a prized asset that lacks any principled land-use plan or development plan from the buyer. We have a process that failed to engage elected leaders, the Budget Advisory Commission, or the community. And we have huge cuts to fire and police, while leaving almost untouched the city’s administrative spending that increased 62% in the past 4 years.
Most worryingly, we have no one examining the far more significant savings options outlined in this article—measures that could maximize the city’s essential services.
What’s next?
It may seem that the city’s poor decision making and planning has bottomed out by this point, with severe cuts in progress and the Coliseum deal already committed. But there are hints that the Mayor wants to take additional imprudent financial risks.
A revised budget plan is scheduled to be presented in the Finance Committee on October 22. Indications from the mayor’s chief of staff, Leigh Hanson, suggests they may play “chicken” with the city’s financial fate. Hanson noted to the SF Chronicle:
Does this $15 million that was intended to come in November significantly change our management decisions around fire stations or police academies? And my instinct is, the answer to that is probably not. We don’t have a cash flow issue.
This implies the administration wants to borrow cash from other accounts like the city’s pension override tax fund or the restricted federal, state, and local accounts (potentially illegally) and spend that money on general city operations. This action assumes that the Coliseum sale will close by May of 2025 in time to repay the debt before the fiscal year end.
Not only would this potentially put the city in legal jeopardy, it could place us in an unrecoverable financial hole in the spring of 2025 if the sale does not go through. The city may have no choice but to spend out the natural disaster emergency funds, and/or declare bankruptcy.
We can only hope that such cavalier moves will not be made, and that the city instead reworks the necessary contingency budget cuts to better preserve its most essential services including public safety.
As the City’s Budget Advisory Committee noted in the final budget meeting in June, we also need to shift the budget conversation from reactive one-time maneuvers to proactive and sustainable budgetary planning. Likely these changes will be difficult, but they are absolutely necessary to save this city from collapse.
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Well said. Oakland has more than double the number of employees it had 30 years ago, and most of the growth has been in middle-management and top administrative positions. I think most of the people currently on city council don't even understand pension funding and how it has and will hobble the budget. The actual increase in the number of employees magnifies the significant % salary increases and benefits cited by the author. Oakland budget future must include reductions in staff in less productive departments, such as Violence Prevention, which really acts more like a private foundation and does not report on metrics or results beyond demographics. The city continues to offshore the employee headcount by taking staff out of the general budget under certain types of restricted funding. In 2004, Oakland had 3,822 employees. IN 2012, 4,073, and in 2023, 4,285 (https://dig.abclocal.go.com/kgo/PDF/022824-kgo-opd-agenda-report-pdf.pdf) . (Where Oakland was in 2012: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://cao-94612.s3.us-west-2.amazonaws.com/documents/OAK039273.pdf )
Usual excellent analysis and reporting. Agree with all suggestions, with an important caveat... the city needs to be very cautious in bond refinancing strategies. Refinancing needs to be simple and "fixed rate to fixed rate - ie avoiding bets on variable interest rate financing/swaps schemes. Here is a summary from the 2010-2011 Grand Jury report on Peralta College district's disastrous OPEB Bond scheme, which cost taxpayers at least 150 million dollars due to bad bets on interest rates. "In addition to the fiscal challenges of funding OPEB costs and related bonds,
there remains the issue of whether the board of trustees will avoid similar risks in
the future. During 2010, PCCD saw the departure of the former chancellor, a vice
chancellor of finance, and the outside financial advisors who oversaw the OPEB
financing. The board of trustees is still comprised of all but one of the same
elected members who were ultimately responsible for each of the financing
decisions:
The board of trustees chose exotic, high-risk financial instruments to fund
a large liability for OPEB. Because of the complexity of these investments,
the district hired new outside financial advisors just to monitor these
derivative investments and bond positions at considerable cost to
taxpayers.
The board of trustees made a series of decisions, each of which worsened
the district’s financial exposure by refinancing bonds to avoid payments
from the general fund in the initial years and to try to increase revenues on
the basis of temporary interest rate anomalies.
The board of trustees failed to recognize signs that the district’s financial
management was seriously deficient; e.g., unable to perform basic
functions of producing budgets, closing the financial books, completing
financial audits, and submitting required reports on time. " AC Grand Jury Report 2011 pg 143 - 151 Situation sound familiar ?.. Great job in compiling these suggestion...