Last week, Oaklanders were jolted by the news that the FBI raided the mayor’s home. This week, they’re confronting a different crisis: the city’s massive budget deficit. But there’s a lot of confusion about the process that’s underway, what’s on the table, and what the next steps are.
Recent headlines have screamed “Oakland budget proposal includes $63 million in cuts” and “$63 million in cuts proposed for new Oakland budget.” A councilmember took to Instagram to condemn the draconian cuts that seem all but assured. And the recall campaign targeting Oakland’s embattled mayor has accused city officials of scheming to cut hundreds of public safety workers.
To be clear, the budget situation is grim. However, a lot of the information being spread around misstates what’s happening. We’re going to briefly break down what’s going on.
June 28 would normally be the day the council passes the budget
The Oakland City Council usually passes a budget before the last business day in June. That’s because its goal is to approve a balanced budget before Jul. 1. However, this will happen this year due to the complexity of the budget and how the council and mayor are attempting to balance it.
The council is meeting today to discuss how they’ll amend this year’s $2.2 billion budget. Council President Nikki Fortunato Bas said the council will continue the budget discussions on Tuesday of next week and likely vote on it then.
The City Council will receive public comment today. So if you have something to say about the budget it’s worth showing up to City Hall or calling in to the meeting.
Why is the city in such bad financial shape?
Big budget shortfalls are a recurring problem for Oakland. Ever since the early 1980s, after California voters approved Proposition 13, Oakland and other cities saw their revenues drop while costs—labor, materials, contracts—continued to increase. Every time there’s a big downturn in the economy, or the sale of properties dips, Oakland’s revenues plummet. This is a structural budget problem that city leaders have yet to resolve.
Last summer, Oakland patched a historic $360 million deficit that was partly caused by the lingering economic impacts of the COVID-19 pandemic. But staff warned city officials that the structural financial problems remained. Oakland spends more than it collects in revenue and that means the city will keep running into shortfalls unless it makes deeper changes.
A big problem the city ran into this year is that it banked on getting a lot more money than it ended up collecting from real estate transfer tax. The city collects this tax whenever a house, apartment building, commercial property, industrial building, land, or other real estate is sold. Property sales have dropped recently, due in part to rising interest rates that make it harder for buyers to borrow. The city’s projection for transfer tax was off by tens of millions of dollars, which contributed significantly to the shortfall.
The council is considering two different budgets—one rosy, one pessimistic
Mayor Sheng Thao’s proposed budget was published on May 24. Her plan factored in the sale of the city’s stake in the Coliseum to the African American Sports and Entertainment Group. Officials initially expected that the $105 million in proceeds from this sale would go toward addressing much of the operating shortfall in the current fiscal year as well as the projected shortfall in 2024-2025.
Later, the mayor and city administrator decided the sale proceeds would not be applied to the current operating deficit. Instead, the city resolved this shortfall by freezing hiring and reducing expenses in every department. The mayor’s budget avoids layoffs, but it’s still an austere plan.
More recently, the city published a contingency plan just in case the sale of the Coliseum sale falls through or gets so delayed. These cuts would start taking place in October.
The city is banking on about $63 million from the Coliseum sale being available next year, so the cuts contemplated in the contingency plan are scary. They would be in the tens of millions of dollars and include the freezing of two police academies, dozens of budgeted police positions, suspending five fire engine companies, and deferring citywide street repairs and traffic improvements. No police officers would be laid off, but the city would allow the force to shrink through attrition to the low 600s. (It’s worth noting that Oakland’s actual number of police officers is already in the low 600s due to scores of officers being out on long-term leave.)
It’s important to understand this contingency plan would only go into effect if the Coliseum sale doesn’t come to pass by September, which is when the first payments from the sale are supposed to fill city coffers.
What’s the second budget plan?
The second budget plan is the one you’ve probably been reading about a lot on Nextdoor, Facebook, and other social media. This alternative budget assumes the sale of the Coliseum will not happen this year. This plan envisions similar cuts as the contingency plan, but they would start immediately. This plan also allows for restoring services if the Coliseum sale does eventually happen this year.
City officials said they prepared the second budget plan at the request of several councilmembers.
Spokesperson Sean Maher said in a statement that the city is trying to make “swift progress” in its work to finalize the sale agreement with AASEG so that the worst-case scenario won’t happen.
“It is critically important to be clear with our community that this administration recognizes the revenue from this sale is one-time revenue that buys valuable time,” Maher said. “This time will help soften immediate impacts to that the deeper work of correcting structural imbalance can be conducted well in advance of the upcoming biennial budget process.”
Will the FBI investigation affect the budget?
No. The mayor’s job is to propose the budget, which she already did. It’s now up to councilmembers to debate their amendments and approve the budget. It’s not unusual for the council to make several votes during the budget process. If they hit a tie, the mayor will need to step in to break it.
