Oakland is facing a deficit that city officials are likening to the Great Recession of the late 2000s — a revenue shortfall that is expected to reach $177 million by the end of the current fiscal year in June.
Still, a budget proposal released Thursday by Mayor Sheng Thao would manage to avoid any layoffs to city employees if it is approved by the City Council. The adjustments would be rolled out in the middle year of the city’s two-year budget cycle that wraps in 2025.
The proposal appears to contain several costly sacrifices.
For instance, the city will put revenues from the sale of a major real estate asset — its half-share of the Coliseum — toward the salaries of thousands of employees, a move that was criticized by financial analysts after Thao announced it on Wednesday.
The city will also freeze just under 100 positions that are currently unfilled, redirecting the salaries for the jobs elsewhere, city administrator Jestin Johnson said Thursday at a news conference.
And officials said they also expect to freeze positions in the future when they are vacated by workers who depart for other jobs or retire, allowing the city to save on salaries without actually forcing any employees to clean out their desks.
The no-layoff plan allowed Oakland’s leaders to breathe a sigh of relief this week after rumors had swirled that civilian public-safety workers might be cut and a sixth of the city’s two dozen fire stations could be “browned out,” or go inactive certain nights of the week.
At the news conference on Thursday, Thao described her proposal as a “fiscally responsible” set of adjustments that “prioritizes essential services in order to deliver a clean and safe city for all Oaklanders while promoting economic development and opportunities.”
The primary cause behind Oakland’s structural deficit — in which expenditures outpace revenue — is that city officials have continually overestimated how much tax revenue would be generated in a local economy that still hasn’t recovered from the pandemic.
Most of that lost revenue is in the real-estate transfer tax because the number of homes sold plummeted after the federal reserve raised interest rates on mortgages.
Tax revenue from business licenses has also dipped significantly as storefronts have shuttered throughout the city.
Thao said the mid-cycle adjustments will buy city officials time to be more “strategic” about planning the city’s budget for next year.
That means making certain services more efficient, such as centralizing payroll divisions across various departments within the city’s finance department — a move that is projected to save the city $7.5 million, officials said.
The purchase of the Coliseum by the African-American Sports and Entertainment Group (AASEG) will also mitigate a huge chunk of the projected shortfalls these next two years.
The Black-led group is planning a massive redevelopment of the East Oakland property, intending to transform it into a new commercial, residential and nightlife hub.
AASEG will pay for the 155-acre complex in East Oakland — including the stadium, arena and in-between parking space — in multiple installments, with officials estimating 60% will be paid this year and 40% the next.
The city and Loop Capital — a Black-owned fund worth billions of dollars that is backing AASEG’s investment — are still negotiating the final sale price, but officials estimate it will be at least $105 million.
That means the city’s $177 million projected deficit this year could be defrayed by something in the ballpark of $60 million by the Coliseum sale.
Oakland had always intended to sell its Coliseum share, but the budget crisis forced city officials to do so sooner, before specifics of AASEG’s project are finalized, and to use the money for its operating costs instead of investing in public real estate.
“On the face of it, it is generally not considered a good idea to sell a long-term asset to solve a short-term budget crisis,” said Steven Falk, who served as Oakland’s acting city administrator for some time last year and now is a lecturer at UC Berkeley’s Goldman School of Public Policy. “It’s not considered sound fiscal policy, just by public-finance principles.”
On Thursday, Thao promised other revenue boosts that could help out the city’s coffers, including incentivizing future television and movie productions to be filmed in Oakland.
As job reductions go, city officials across the board say more will come down the pipeline as they plan for the next budget. But the mayor emphasized that public-safety jobs will be preserved — including the city’s police academies, where the size of graduation classes has recently dipped.
Thao’s office is expected to release full details — including more concrete numbers — of its budget proposal on Friday. At some point in the coming weeks, the City Council will consider voting to approve it.
“I urge the City Council to be thoughtful, disciplined and solutions-oriented as we move forward,” Thao said Thursday.
