Oakland’s $360 million budget shortfall
Dear John,
San Francisco is not the only Bay Area city facing major budget woes. Oakland Mayor Sheng Thao’s proposed budget for 2023-25 released last month reveals the city is facing a $360 million shortfall — the largest budget deficit in Oakland’s history.
The city’s budget proposal for FY 2023-24 and 2024-25 plans for total expenditures of over $2.1 billion each year — roughly a 120 percent increase in total spending compared to just ten years ago.
The mayor is proposing some cost-saving moves, like department cuts and consolidations. For example, Thao plans to combine the Housing and Community Development Department with the city’s Community Homelessness Services program, and merge the Planning and Building Department with the Economic and Workforce Development Department, among other consolidations.
Thao also plans to freeze hiring for 300 city positions that have remained vacant for “sustained periods of time,” and to delay the rollout of a new fire engine. And, she asked departments “to propose their lowest priority services for reduction or elimination.”
At the same time, Thao’s budget allocates $200 million of new spending for affordable housing in the form of bonds (a.k.a. debt) already approved by voters. It also calls for a major expansion of Head Start programming and a new Department of Children, Youth & Families. In addition, the budget allocates $213 million to build, repair and upgrade parks, recreation facilities, libraries, and non-road infrastructure, and $73.9 million over the next two fiscal years for citywide street resurfacing.
But Oakland’s largest expenditure category by far is “Personnel & Overhead” — which comprises salaries, fringe benefits, and retirement funds — and accounts for more than half of total spending.
The budget proposal allocates spending $1.08 billion for FY 2023-24 and nearly $1.14 billion for FY 2024-25 for these costs. The projections are based on current memoranda of understanding (MOUs) with the various public sector unions representing Oakland’s employees.
When it comes to escalating municipal budgets, salary and benefit growth is almost always a major driver, and public employee unions are the primary actors contributing to these financial predicaments.
Employee union contract agreements often impose significant challenges for a city’s year-to-year budgeting process. For example, Oakland is obligated to add $1.6 million to the FY 2024-25 budget to fund the conversion of some part-time positions to full-time under a MOU between the city and SEIU Local 1021.
Of course, when new contracts are negotiated between unions and city agencies, they will only increase the city’s obligations for employee compensation and benefits — plunging Oakland deeper in the red. Union leaders willfully ignore the fiscal reality facing city leaders when demanding more and more for government employees, despite the threat of lost services to the residents and taxpayers city officials are elected to represent.
While Oakland's leaders may be able to juggle revenues and expenses in the short term, the city will continue to face major deficit dilemmas every budget cycle unless significant reforms are instituted. Until the government employee unions are reined in, Oakland will have many more years of fiscal hardship.
Read the full article by CPC Research Manager Sheridan Swanson here.
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