New Questions on Fiscal Crisis After Council Meeting

Despite thorough and troubling discussion about the daunting fiscal cliff facing Oakland at a Special City Council meeting last Tuesday, the way forward on the FY 24-25 budget remains an open question this week. At the meeting and in a report, Oakland's Finance Department stressed taking “immediate” action to balance Oakland’s budget with big cuts to police and fire, the expenditures leading the budget into deep waters. Finance staff insisted the cuts would have to be enacted by the end of the calendar year to have sufficient time to correct course. And staff told Council members they’d need to declare a fiscal emergency because the City had already started to dip into its emergency reserves due to cash shortages brought over from the previous fiscal year.

But at a Rules Committee meeting Thursday, the Finance Department withdrew legislation that would have put a fiscal emergency declaration before Council on December 3. The legislation was withdrawn with no new date, leaving a key recommendation out of the current calculus, and doubt about the finality of some of Finance's statements.

Sober Budget Meeting

At last Tuesday's meeting, Oakland’s Budget Director Bradley Johnson brought home the precarious fiscal position the City finds itself in with words shared from right to left on Oakland's political spectrum. Mayor Sheng Thao’s administration had been counting on the short term fix of the AASEG Coliseum sale to right an already unbalanced budget this year, with promises to begin next year’s budget process early to address a decades' long fiscal imbalance. But despite only a ministerial approval needed for a transfer of a development agreement between the County and the A’s in the way, the deliberation among Supervisors about how and when to pass the transfer legislation has dragged on in closed sessions. Even without the sale, however, Council members were told weeks ago that the OPD is overspending to a level of precarity that would create a large, difficult to close budget gap.

One small ray of light is that the FY 24-25 revenue estimate is on target, a rarity for Oakland since the new economic realities of Covid began. But the budget negatives have already built up—the City finds itself transferrring about $12.7 MM in necessary carry over spending for continuing programs and debts from last year and around $10 MM in legal settlements, only slightly mitigated by a positive carry over from an unused equipment fund. When the City’s overages are added up with the negatives from the previous year, the Finance Department predicts a $114.9 MM deficit if the spending trends continue into next year.

The reality remains and was driven home continuously by staff—the cuts needed are large, and only two departments have deep enough funds to cut for them, OFD and OPD.

Fiscal Emergency Declaration Withdrawn from December Agenda

During the meeting, however, some optimism appeared in the overwhelmingly bleak outlook. CM Kaplan made a scheduling motion for legislation that would transfer a $30 MM carry-over from the Self-Insurance Fund to the Emergency Reserve, topping up the reserve and obviating the need to declare the fiscal emergency—that would be a minor, but meaningful, turn in the plan laid out by finance.

At a subsequent Rules Committee Meeting that Thursday, the City Administrator’s Office withdrew the legislation to declare a fiscal emergency.

In its report and on the dais, the Finance Department has maintained that the declaration is necessary because the City must use the reserves as it enters the FY 24-25 fiscal year with a deficit from the previous year. The Consolidated Fiscal Policy requires that a fiscal emergency be declared when the City uses funds from the reserve—because only “emergency” use of the fund is allowed. During Tuesday’s meeting, Budget Director Johnson told Council members that the City had already dipped into the City’s emergency reserve:

“We mentioned we ended last year in the negative position. That negative position was substantial enough that the city…[has] effectively tapped into our mandated emergency reserve under the consolidated fiscal policy,” Johnson said.

But city spokesperson Sean Maher told this publication via email that the fiscal emergency declaration was originally placed for scheduling only in “case such a declaration was necessary” in December. The City’s rules of procedure allow a last minute scheduling process for urgent matters, which, apparently, the City would use if the legislation was required this calendar year.

“In the event a fiscal emergency declaration will be needed in December, the City Administrator’s Office would use the Rules of Procedure urgency scheduling process to have an agenda item be added for a fiscal emergency declaration,” Maher wrote.

City May Have Alternatives to Declaring a Fiscal Emergency

The Consolidated Fiscal Policy sets out the steps required before declaring a fiscal emergency—the City’s audited financial statement must be reviewed by Council, and that audit is still being completed. And alternatives to topping off the emergency reserve must be brought to the Council as well.

Each year, upon completion of the City's financial audited statements, the City Administrator shall report the status of the General Purpose Funds Emergency Reserve to the City Council and on the adequacy of the 7.5% reserve level. If in any fiscal year the General Purpose Fund Reserve Policy is not met, the City Administrator shall present to Council a strategy to meet the General Purpose Funds Emergency Reserve Policy. Each year, the City Administrator shall determine whether the 7.5% reserve level requires adjustment and recommend any changes to the City Council.

The emergency reserve itself isn’t empty, it’s just under the required 7.5% of the GPF required by the Consolidated Fiscal Policy. $30 MM would restore the fund to legal requirements and obviate the need for the declaration of fiscal emergency solely on the grounds of the required levels.

The withdrawal of the fiscal emergency legislation may also be a nod to CM Rebecca Kaplan’s on dais scheduling motion to tap the self-insurance carry forward at last Tuesday’s meeting, which is now agendized for the 12/3 meeting. Kaplan maintains the amount was carried over at an unnecessary level, adding more funds to the Self-Insurance fund than typical, and that the City Attorney agrees with the assessment.

In an attachment to the Finance report, however, the Finance Department also argues that the reserve itself at 7.5% of the GPF wouldn’t be enough to sustain the City in the advent of insolvency—and notes that best practices recommendations from the Government Finance Officer's Association for such a fund are actually 16.7%, or two month's operating expenses. The the city has never contemplated such a a higher level in the decade since the legislation was passed, however.

AASEG Development Agreement Transfer Moves Out of Closed Session And Toward Tentative December 17 Vote

Last night, the Alameda County Board of Supervisors finally approved moving to negotiate the terms for a transfer of the Development Agreement it has with the A's on its share of the Coliseum to AASEG. The A’s are in the last stages of paying off the county, and in doing so agreed to sell their share to AASEG, but the County’s approval and transfer of the agreement is still necessary. What was considered a simple ministerial transfer approval has dragged on since September through closed session meetings where Supervisors have been apparently discussing adding new terms to the DA, according to informed sources.

After a marathon closed session, County Counsel Donna Ziegler announced that the Board is now ready to negotiate its terms with AASEG and bring the deal to a vote.

Earlier that morning, union officials, rank and file union members, AASEG principals and East Oakland residents appealed to the Supervisors to bring the legislation out of closed session for a "up or down vote"—a frustrated commentary on closed door politicking that has become impossible to ignore as the County has held the deal in limbo for weeks.

Incoming D1 Council Member Zach Unger and D6 Council Member Kevin Jenkins also spoke at the meeting and urged the BOS to schedule legislation for the DA transfer for a vote. Unger seemed to encapsulate the frustration about the disparate treatment compared to the A's, the concerns of community, the Trades and the City unions depending on the sale funds to avoid impacts to their jobs.

"If there are problems with the deal, if you have concerns with the deal, go on record and discuss what they are. If we can't get this coliseum deal approved, we are going to kill economic vitality in East Oakland. If we can't get this coliseum deal approved in open session, over some procedural impediment, we are going to have to close firehouses and reduce police services and safety and violence prevention services for all citizens of Oakland. If this deal can't come to open session and get voted through, we are going to, instead of having a increased tax base, a vital center for jobs in East Oakland...instead we're going to have a blighted, derelict property that we are going to watch descend into squalor over the next 30 years. This is a generational opportunity, and the board was willing to assign the sale to the A's just a few years ago. This is the same piece of property. It's the same type of sale...I urge you to approve this deal either in closed session, if you can do that, or bring it to open session and give it an up or down vote," Unger told the BOS, both in his current capacity as President of the IAFF 55 Oakland firefighters union and incoming council member.

The A’s DA had notoriously few requirements and seemed aimed at creating an attractive deal for the A's at the expense of both Oakland and the County. At the time, Supervisor Nate Miley characterized the low purchase price for the A's as a "discount". Even as the A's decided to leave Oakland, the County DA only accelerated payments, allowing Fisher to leave without giving up the parcel.

With the announcement the deal is a step closer to moving forward, there are still necessary steps to make it a reality. AASEG must begin to negotiate the County's terms within the next week to hit the 12/17 date. The County's terms themselves aren't known, but they are undoubtedly—and surprisingly—terms the A's were not required to meet in the original sale. AASEG will likely be able to settle with Communities for a Better Environment on its lawsuit, but AASEG must still defease the remaining payments on bonds.

It’s unclear if the funds would be available or when—it’s also unclear if Council would move to budget the monies against the recommendations of the Finance Department. The Finance Department has urged the City to not run the risk on budgeting for the eventual sale proceeds even if they appear fairly certain.