Finance Department/City Admin Find Surplus in Emergency Fund Said to Be Insolvent Weeks Ago; Layoffs, Reducing Emergency Fund Requirement Options That Could Balance Budget
After weeks of cascading impacts from a Finance Department report that claimed the City of Oakland was in danger of imminent insolvency in November, the City’s finances now appear to be a different story in December. A version of a report that suggested bankruptcy was an imminent concern several weeks ago, signed by both the City Administrator's Office, and Erin Roseman, the Finance Director, was quickly withdrawn the day it was published, but not before its contents were disseminated by local media companies. The claim found its way into Fitch ratings criteria, where it was cited as the rationale, along with the recall and budget issues, for downgrading the City’s credit from AA, the highest rating, to A, two notches lower [but still higher than many cities].
Even after an amended report replaced the more bombastic one, the Finance Department also instructed the Council that its emergency reserves—a city-ordinance mandated fund set at 7.5% of the expenditures for the fiscal year—were insolvent, and that the Council would have to declare a fiscal emergency as the funds were already in use to balance the budget. The City's Consolidated Fiscal Policy requires the Council or Mayor to declare a Fiscal Emergency when the fund is insolvent and can't be made whole. A direct quote from the text of the report:
“given there is no possibility of replenishing the reserve this Fiscal Year, the City will be required to declare a Fiscal Emergency per the Consolidated Fiscal Policy (CFP), following the conclusion of the Audit and publication of Annual Comprehensive Financial Report,” [Fiscal Year 2024-25 First Quarter Report, November 8, 2024 from Finance Director Erin Roseman].
The alarming claim prompted CM Rebecca Kaplan to schedule on the floor legislation that would direct the transfer of $30 MM in funds claimed to be over-budgeted to the Self-Insurance Liability Fund to replenish the emergency fund at the November meeting where the report was heard. Kaplan's proposal, if accurate, would have obviated the declaration of Fiscal Emergency and put out one, of many, fires in the budget. But now, the City Administrator in a new report to be heard at a Special Meeting Monday, says the emergency fund is actually solvent—with a $10 MM surplus.
Kaplan’s legislation is still on the agenda for the same 9:30 am Monday morning meeting, but now the City Administrator suggests moving $15 MM from the Self Insurance Fund–indeed apparently over-budgeted—to aid the GPF instead. A previous declaration of fiscal emergency from the City Administrator’s Office was withdrawn from scheduling at a Rules Committee meeting several weeks ago.
There’s no explanation in the new report, nor from the City, about what changed in the meantime. A request for more information about the change in the status of the emergency fund was acknowledged a City Administrator spokesperson, but not answered by Friday evening. An accompanying item—a supplemental report to the Q1 report on the same agenda—still states that a declaration of fiscal emergency is unavoidable and that the reserves are at negative 56%, rather than at surplus.
“The city holds $37.23 million in emergency reserves, which is 57% of the required reserve level of $68.78 million,” according to the report, a question and answer response from City Council members.
Different Budget Prospectus
In the new report and legislation, the City Administrator now says the emergency fund is not only solvent, it’s at a $10 MM surplus–and that surplus is being transferred to the general purpose fund to tackle the deficit. The deficit is also about $14 MM higher as well at $129MM [due to additional carryforwards, including Head Start funding, according to the report].
The budget is still in a precarious position and the City is faced with difficult choices, including a decision on browning out up to 6 OFD stations, and a potential elimination of police academies. But even with a bigger deficit, the tone in the reporting is notably restrained and offers more varied solutions. That’s a stark comparison to the few paths forward and alarm bells ignited in the Q1 forecast and its supplemental report.
The budget balancing resolution notes a previously undiscussed set of options that can be enacted by Council and the City Administrator to tackle the deficit in the shorter term [Phase 1], including:
—transfer of the newly-found emergency fund surplus into the GPF
—transfer of a portion of the over-funded self-insurance fund highlighted by Kaplan into the GPF
—transfers from the Affordable Housing Trust Fund [$5.8 MM]
—reallocation of underspent funds city wide
—use of other restricted funds [which must be legislated], cost transfers, adjusted budgetary assumptions
—contract, program and grant reductions and eliminations and other spending cuts including 2 OFD Firehouse brownouts and cancellation of 2 OPD academies
Layoffs on the Table
Some of these moves, like transferring money from restricted funds in the AH Trust Fund and other funds, must be approved by Council vote. Those combined actions cover about $113 MM of the shortfall. To bridge the remaining $15 MM gap, the report suggests a Phase 2: layoffs of about 91 staff, most of which are in DPW, Human Services and civilian OPD employees [OPOA’s contracts forbids sworn officer layoffs] and other service cuts. The cuts would also brownout 6 fire stations total on a rotating basis—four in addition to the two already contemplated as stabilizing actions in the short term. The report suggests the City Administrator has the power to unilaterally proceed with layoffs, but it’s possible that Council will either request, or legislate, an alternate set of cuts, or solutions at Monday's meeting or before the end of December.
The CAO notes that the only alternative to the layoffs would be declaration of a fiscal emergency and use of the emergency fund to patch the general purpose fund—however, elsewhere, the CAO also addresses the idea of legislatively lowering the percentage level required in the emergency fund to produce the same amount, which would not require a fiscal emergency declaration. Both of these suggestions and others, the City Administrator notes, fulfill the CAO’s requirement in the Consolidated Fiscal Policy to offer an “analysis” in case the Council opts to consider declaring a fiscal emergency and use the 7.5% emergency fund.
OPD’s “Cuts” Would Rein in Overspending on Both Budget Models, Coli Sale and Contingency
OPD is still required to limit its overtime and suspend its special unit operations regardless of the solutions, a “cut” of $25 MM or so. The original budget passed in July was based on the Coliseum sale revenue and had a more generous OPD staffing budget, but regardless, OPD was already exceeding it by the time it became clear the Coliseum sale funds would be delayed. Changes in practice now will require overtime to be signed off on by the City Administrator to avoid the continued spending projected to lead to the large overage.
In addition, the two police academies scheduled for this fiscal year would be cancelled. But the actual outcome of that action may not be all it seems. The 195th academy that was meant to start in August has had so few applicants that it’s been rescheduled several times. The last hard date for commencement was in November. At that time, the OPD told the Public Safety Committee that it had failed to recruit more than 15 trainees [now 16]. Later, at a Police Commission meeting OPD Chief Floyd Mitchell told Commissioners they'd been unable to recruit more trainees and had to delay the academy again.
The next academy, the 196th, was originally slated to start in January 2025, but with the current academy pushed so far back, the 196th likely would have also started at a later date—that is if the OPD could find recruits for it. Had the 195th academy begun with 16 recruits, it would have provided little respite with the number of officers graduating officers likely being 10 or fewer.
The 195th, the current class of trainees finishing up training, will graduate later this month, adding about 24 or 25 officers—that will put the OPD back at 700 on the books officers from its current 675—even though the budgeting for police staffing is at 600 under the contingency plan. Thus, gradual attrition from that point onward will be at about 3 to 5 officers per month, and by June 30, would see staffing back at around the current number of police. Depending on whether, and how successfully, or quickly, academies are budgeted for the fiscal year will be the final arbiter on whether police staffing decreases significantly beyond the current level.
It’s still possible Council will find the funds to hold one academy this year, given the pressures, but if it doesn’t, attrition will continue at the rate until new academies graduate, and wouldn’t get to the currently budgeted figure of around 600 until December, 2025 before academies beginning in the new fiscal year graduate. The City has an extraordinary number of officers on leave–91 according to a current Oakland Police Commission agenda report—so the actual strength of the OPD is lower. The actual number of police officers, compared to budgeted, may ease off overtime and the savings from officers drawing less pay during leave will likely help OPD stay closer to its budget.
Council May Choose Other Paths Forward
Along with the newly solvent emergency fund, the City Administrator highlights the potential of legislatively decreasing the required emergency fund by 2.5%—that would yield $20 MM, more than enough to bridge the gap, and to restore other services. The CAO not only warns against doing so, however, the office also suggests the fund should be set higher than it currently is, at over 16% of the general fund expenditures. The CAO, and Finance, have also warned against budgeting the AASEG sale, which is now in negotiations between the group and the County for transfer of the A’s Development Agreement after a long, mysterious exile in County closed session. With a successful negotiation—the item could be on the County BOS agenda for 12/17. Passage of such an agreement wouldn’t be the last word on the deal, a defeasement of bonds would still be required. After reassigning a purchase negotiation to the Roots and Soul soccer clubs, it’s possible that a late sale of the Raiders training facility could also reduce the need for layoffs.
Addendum:
In a press release from Sunday afternoon, city union IFPTE 21 says that non-sworn layoffs only amount to 6 MM in savings that can be found elsewhere, and that the City Administrator's monitoring of OPD overtime will leave the most serious expenditures unchecked. The union offers the following cost/revenue alternatives:
- Vacant Positions: While the city may already be accounting for some vacancy savings in its budget projections, there is no plan to eliminate long standing funded but unfilled positions. The Administration should identify what positions are likely to remain unfilled and should be removed altogether to right-size the staffing budget.
- Revenue Collections: The Administration cites a slight increase in revenue but there is no plan to improve business tax collection and compliance or further improvements to parking enforcement. In the past, a comprehensive clean-up of delinquent tax accounts was able to bring in over $7 million in one-time revenues.
- Overtime Costs: The Administration has no plan to implement an audit of Oakland Police Department (OPD) overtime. The Administration intends to limit certain overtime requiring pre-approval, but has no intention of monitoring shift extension overtime, leaving the department's most wasteful spending unchecked. An outside study found that in one fiscal year just 12 officers extended their shift by a total of 500 hours or more without seeking prior approval from a manager, costing the city over $2 million.
- OPD Staffing Efficiency: The Administration ignores recommendations to use civilian staff for certain roles within OPD which could save millions and refocus police resources on violent crime.
- Grant Funding: The Administration has no plan to apply for workforce development grants, which represents up to $13 million in state and federal funding.
- Executive Pay: Despite the city’s financial struggles, there are no reductions to top-level executive pay, which has gone up by $8 million—an average compensation increase of $116,000 for each top management employee—over three years.
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