The city is projected to end the fiscal year with an estimated $93M shortfall. It’s worse in the next two years.
By ONME News - Oaklandside
Oakland is heading toward bankruptcy if it doesn’t reduce city spending.
This is the grim takeaway in a new report issued by the Finance Department Friday. The department analyzed how much money the city has received from taxes and other sources and spent in the first quarter of fiscal year 2024-2025, which started in July and ended in September and made projections based on these numbers.(Update: after The Oaklandside downloaded this report, the city published a different version of the report on the city council’s website).
The city is projected to collect about $758 million in revenue in the general-purpose fund by the end of the fiscal year in June 2025. The city is forecasted to spend over $851 million. That means Oakland is expected to have a $93 million operating shortfall in the general purpose fund when it ends the fiscal year. This is preliminary data and numbers will change.
Almost all this overspending will be by the police and fire departments. Despite taking steps to reduce spending in departments, staff wrote that “reductions in the OPD and OFD budget are now unavoidable to effectively address the current year shortfall.” The report noted that avoiding cuts to public safety would require effectively eliminating 83% of non-police and non-fire expenses. Specific reductions to OPD and OFD have not yet been determined.
“The results of this First Quarter show that immediate action is necessary to maintain the solvency of the General Purpose Fund and avoid the Chapter 9 process,” Finance Director Erin Roseman wrote in the report, which will be discussed at a special city council meeting on Nov. 19.Oakland has already tapped its emergency reserve and there’s no possibility of replenishing it this year. That means the City Council will be required to declare a fiscal emergency.
“All City police makers, staff, residents and other stakeholders must seriously grapple with the current financial circumstances,” Roseman wrote. “Fecklessness and failure to take dramatic and immediate steps to reduce expenditures will almost certainly result in insolvency. Finance staff implore all decision makers to immediately and urgently begin the task of reducing expenditures in order to avoid insolvency.”
Filing for bankruptcy would probably involve Oakland developing a financial recovery plan to pay back creditors and restructure its debts. It could also include slashing the pensions and health plans of retired city workers. Dozens of municipalities have filed for bankruptcy over the past couple decades, including California cities like San Bernardino, Stockton, and Mammoth Lakes.
Finance staff warned councilmembers last month that Oakland is heading into a bleak financial terrain. According to staff estimates, Oakland will have a $120 million structural deficit in each year of the 2025-2027, which is the next two-year budget cycle.
There are a few major factors driving the deficit in the general purpose fund: Oakland no longer has access to federal relief money that filled city coffers during the pandemic; real estate transactions plummeted and Oakland lost out on a bunch of revenue; and the city is overspending its budget on public safety services. The police department is the biggest overspender. OPD is projected to overspend its 2024-2025 budget by $52 million, mostly due to officers collecting overtime.
A risky budget balancing maneuver hasn’t paid off
Earlier this year, Mayor Sheng Thao proposed balancing the 2024-2025 budget using proceeds from the sale of the city’s stake in the Coliseum. Initially, the city counted on using $63 million from the sale to avoid serious cuts to various departments. If those proceeds didn’t come in by a certain date, the city council agreed to implement a backup budget that would reimpose those cuts.
The City Administrator and AASEG revised the deal to get Oakland more money from the deal and wrap up the transaction on a quicker timeline. But this delayed the payments to Oakland, which triggered the backup budget. Oakland was supposed to receive $10 million from AASEG on Nov. 7. But the developer was unable to make that payment because it first needs Alameda County to approve the sale of its own portion of the Coliseum. The Board of Supervisors has been dragging its feet on this last step and no one knows why.
While Oakland could theoretically get paid a big chunk of money by AASEG before the close of the fiscal year, the Finance Department is not making fiscal projections based on the land sale, “reinforcing the need for the City to plan without reliance on uncertain future funds.”
“Staff strongly recommends that decision makers DO NOT include the Coliseum sale proceeds in any future budget balancing action until after that cash has been received and title of the property transferred,” Roseman wrote in her report.
Earlier this year, an outside financial advisor cautioned Roseman that Oakland relying on one-time proceeds from a land-sale could have “catastrophic” consequences for the city’s finances, including bankruptcy.
Moving forward, the city plans to explore various options for reducing expenditures. That will include negotiating with “ALL of its bargaining units,” the report stated. The voter-approved Measure NN will raise more money to support public safety services in Oakland. And Oakland will continue to “tightly budget” for all contract services.
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