Project OaklandTech, Culture and Change in Oakland, CA

Original Editorial Article by Daniel Borenstein – The Mercury News

Without new income streams or budget cuts, the city now faces a projected $100 million annual shortfall by the 2019-20 fiscal year, a forecast 74 percent worse than just two years ago.

Some of that difference is due to using more realistic assumptions. But the city’s latest five-year projection still ignores payments on major debt and makes overly optimistic predictions about the strength of the economy.

The numbers show that Mayor Libby Schaaf and the City Council still have not corrected Oakland’s structural budget imbalance. As a result, city finances continue to teeter at a fiscal precipice in danger of plunging in the next recession.

Meanwhile, Oakland leaders continue pushing huge debt for employee retirement benefits onto future generations of taxpayers. The shortfall has increased in two years from $2.4 billion to about $2.8 billion, or an average $17,500 per household.

If not for an exorbitant, hidden city property tax to help cover some of the cost, the city would be unable to meet payments on the retirement debt.

Schaaf, who must soon propose a budget to the council for the next two fiscal years, has a choice: She can push for meaningful spending reductions and lead the city toward fiscal sustainability, or mimic her two predecessors, who buried their heads in the sand.

When Schaaf took over for Jean Quan two years ago, she inherited a budget that had been neglected for years. Schaaf, unlike Quan, understood and acknowledged the city’s fiscal problems.

But rather than hold the reins tight as she should have, Schaaf expanded city staff. The year she took office, the number of full-time city employees had dropped to 3,681, down 720 from the start of the Great Recession.

Unfortunately, rather than pay off debt and bring spending under control, the Schaaf administration rapidly hired back 500 workers, while the entire workforce received raises to make up for years of static wages.

That would be fine if Oakland could afford staffing and compensation increases. But it can’t, as the fiscal forecast makes clear.

Absent corrective action, according to the forecast, the city’s expenditures, at current staffing levels, will exceed revenues by roughly 10 percent annually by fiscal year 2021-22. That translates into a $70 million shortfall for the general fund and $148 million for all city funds.

It’s actually worse because the forecast is overly optimistic. It does not account for an economic downturn, for which history suggests we are already overdue.

And it assumes Oakland will continue its unconscionable practice of not making minimum installment payments on the city’s debt for workers’ already badly underfunded retiree health benefits.

As a result, the city will continue taking on more debt at a rate of about $40 million to $50 million a year.

That’s on top of the current $906 million of debt for the retiree health program, $1.3 billion for the city’s pension plans through CalPERS and $608 million for a pension plan for retired police and firefighters hired prior to July 1976.

Even if the city keeps the size of its workforce at current levels, the forecast notes, increased costs for fringe benefits, which include free health insurance for employees and their dependents, and worker pensions will increase the size of the annual budget shortfalls.

Those rising pension payments are due to changing investment and actuarial assumptions at the California Public Employees’ Retirement System, which administers most of the city’s pension assets.

CalPERS has for years made unrealistically optimistic investment forecasts that have left the system woefully short of funds. The rate increases are an attempt to correct for that. But they have drawn complaints from cities that are now blaming CalPERS for their financial woes.

If those cities had paid attention, they would have seen this coming and planned for it. Rather than complain, cities should embrace the changes, which more accurately price the cost of pensions and should slow the rate of mounting debt.

But Oakland has traditionally balanced its books by kicking the proverbial can down the road. It’s time for that to end.

Featured image by Laura A. Oda/Bay Area News Group

Featured

---

---