Though the City Council approved millions in budget cuts last June, Oakland continues to face a large financial shortfall, and unbudgeted police overtime accounts for most of that gap.
In a report that will be heard at a meeting of the City Council’s Finance and Management Committee next Monday, interim Finance Director Margaret O’Brien wrote that Oakland ended its 2019-20 fiscal year on June 30 with a gap of $30 million. “This shortfall puts the city at risk of pending fiscal insolvency,” O’Brien warned.
Insolvency would mean that Oakland would not be able to pay its bills, including obligations like bond debt and worker paychecks. (In an update to that report posted on the city’s website on Friday, O’Brien removed the term “fiscal insolvency” and wrote instead that Oakland is facing “severe fiscal stress.”)
Both versions of the report state that the city’s financial situation is expected to get worse. The current year’s projected budget gap is $32 million and the city’s total shortfall will grow to $62 million “if no fiscal corrective action is taken.”
The coronavirus pandemic is partly to blame. As expected, the pandemic and stay-at-home orders caused a serious economic slowdown. During the last fiscal year, the city collected $20.6 million less in tax revenue than it expected. The biggest declines were in hotel taxes, which fell by $8.2 million after most hotels closed in March. Sales taxes dropped $4.4 million and business license taxes fell by $1.6 million.
But overspending, not lost revenue, accounts for most of the city’s current budget gap, and the Oakland Police Department is “primarily driving this overspending,” according to O’Brien’s report.
In the last fiscal year, the police department overspent its budget by $32 million. This included $19 million in unbudgeted overtime. In previous presentations to the City Council, city administrative staff said this was due to the police department calling in hundreds of officers for extra shifts during protests against police brutality and racial injustice in May, June, and August.
Historically, OPD has overspent millions each year on overtime, but councilmembers have tried over the years to reign in this spending and consistently approve a smaller budget for OPD overtime than was spent in previous years. Over the past five years, OPD has averaged $30 million annually in overtime while the council approved about half this amount each year.
City Administrator Ed Reiskin, who approved O’Brien’s report, characterized the problem as one in which the City Council has “underfunded” police overtime. A City Auditor’s report from last year also framed the problem as the Oakland Police Department being continuously “underfunded” when it comes to overtime.
Some councilmembers disagree with the view that OPD’s overtime budget is underfunded, and say the problem is that OPD and the administration are spending money without council approval.
“The City Council has budget authority. Who authorized this theft of $32 million the police department was given? It wasn’t authorized in the budget,” said City Council President Rebecca Kaplan in an interview this week.
Kaplan noted that the council’s June budget adjustments directed the city administration to ensure that OPD did not overspend on overtime during the past fiscal year, and that $8 million for police overtime was held “in escrow” pending a closer review that’s supposed to happen later this month.
“This is more overspending, it’s bigger than previous years, and it’s not being spent keeping people safe,” Kaplan said.
City administrators, including Finance Director O’Brien, did not respond to requests for comment for this report.
Are layoffs inevitable?
Unions that represent most civilian city workers say they think the city can and should avoid layoffs and other painful cuts while balancing the current budget.
“What the City’s revenue and expenditure report shows is that the departments where most of us work have stayed within their budgets adopted by City Council, with the overspending coming from the ongoing failure to budget adequately for sworn police overtime,” said Felipe Cuevas, SEIU 1021’s Oakland chapter president, who is employed by the city as heavy equipment mechanic. “It would be not only unjust, but also nonsensical for city leaders to plug gaps created by their own failure to budget properly by cutting the services and workers the community most needs to survive and thrive.”
Kristen Schumacher, a researcher with expertise in government budgets who works for IFPTE Local 21, which represents hundreds of city employees, said the city administration is painting an inaccurately dire picture, and that cuts aren’t necessary. “The projected shortfall for next fiscal year is relatively minor and the administration still has a number of tools available to close it,” she said.
According to Schumacher, the city has reserves it could decide to tap into, and numerous vacant positions that are funded in the current budget could be frozen to produce more savings. Schumacher also said that millions more in funds were dedicated to city projects that haven’t been completed, or haven’t started, and that pausing these can free up more money. “The current projections also don’t account for millions of dollars in expenditures that are potentially eligible for FEMA reimbursement,” she added.
The city’s financial problems will be discussed at the upcoming Finance and Management Committee meeting on Monday, December 7 at 1:30 p.m. See the link for details on how to tune in.