THE OAKBOOK - Kernighan on the Budget Disaster

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Kernighan on the Budget Disaster

Patricia Kernighan

Last Updated on June, 07 2010 at 05:13 PM

You have no doubt heard that Oakland city government is facing a huge budget deficit. The City has a $43 million gap between our projected income and our cost of providing services. The City Council must pass a balanced budget for the fiscal year starting July 1. In order to do that, we need to make deep cuts to all City departments, and it is very likely that those cuts will include laying off many police officers. I know that this sounds unthinkable given Oakland's public safety challenges, but it may be unavoidable because of the lack of funds.

My colleagues and I are working to craft alternatives to cutting police because we realize that public safety is critical to our residents. The alternatives involve sales of City property and other one-time infusions of cash that would stave off cuts to the police department for another 12 months. Normally, it is not prudent policy to use one-time money to balance a budget, but given the great detriment to our city that would be caused by losing up to 200 police officers, I am embracing all possibilities.

I want you to understand why the City would even consider reducing the number of police. Below I describe the factors that have put our City government is such a terrible predicament and what we are doing to balance the budget.

Revenues have fallen dramatically

Tax revenues have been dropping for the past 18 months and continue to decline. In 2005, revenue to the General Fund was $478 million. Today it is $408 million. Despite significant cuts in City spending during the past year and a half, our current expenses exceed the revenue coming by $43 million. The deficit will be slightly larger next year.

Details: Sales tax and real estate transfer tax are way down. The transfer tax has dropped by $50 million in three years. Though you are still paying your property taxes, hundreds of properties have been foreclosed on and their taxable value reduced, thus reducing total revenue to the City. ( Most people don't realize that only 28 cents of every property tax dollar goes to the City. The rest goes to the State and County.)

The City cannot unilaterally reduce salaries or pensions

One budget solution suggested by many residents is to reduce employee salaries or pension plans. I strongly agree that that would be preferable to layoffs. However, the only way to reduce salaries or pensions is by getting the agreement of the employee labor unions. Almost all City employees are represented by unions, and they have existing collective bargaining contracts with the City. The City cannot change those contracts unilaterally. State law requires that any changes to wages, benefits or working conditions must be negotiated and agreed upon between the City and the collective bargaining units.

Last year, the city negotiated a giveback of 10% of total compensation from almost all employees. In the case of police, they gave back the raise they had previously negotiated, so their salaries stayed flat this year.

The City Council has entered into talks again with the police and fire unions. Among the issues is that police do not contribute to their retirement costs and we think they should. If they did, it would save the general fund $7.3 million annually. Their pension is very generous. It is based on the 3% at 50 formula, which means that a 30-year veteran retires at 90% of his last year's salary. Firefighters have the pension formula, but contribute 13% per year to the cost. Civilian employees have a 2.75% of 55 formula and contribute 5%. In better times, the Council agreed to these plans. However, the economic boom times are over and these salaries and pension costs are unsustainable now and in the longterm.

Past ballot measures limit the ability of City Council to make cuts in many areas

Ballot measures passed by in earlier years contain restrictions that severely limit the Council's flexibility in making budget decisions. ln particular, City Council cannot cut much more in library and youth services, and none in sworn firefighters or police without losing millions in current special taxes. Specifically:

Measure Q is a parcel tax that brings in about $12 million annually for the libraries. In order to collect the tax, the City must allocate at least $9 million per year in General Fund money to our libraries. We are at about $9.5 million in general fund now, so cannot cut much more from the library without losing the $12 million in special tax.

Measure Y is a parcel tax measure that raises $20 million per year. (Each home pays $89 per year.) It provides $10 million for police, $6 million for violence prevention programs, and $4 million to the fire department. In order to collect the tax, the City must allocate enough non-Measure Y money to pay for 739 police officers. If we cut even one officer below the 739, we lose the whole $20 million. That is why if we lay off any officers, we have to cut a lot of them.

Measure D - Kids First Set Aside

The current version of the Kids First set aside, called Measure D, passed last summer. It is not a tax. Rather, it requires the City to set-aside 2.5% of the General Fund to pay for services to children and youth. This year, that equals about $10 .7 million. This set-aside provides after school programs at 40 elementary schools and 15 middle schools as well as other youth services delivered by non-profit agencies.

In addition to the 2.5% set-aside from the General Fund, the measure also requires that the City maintain a certain base level of funding for youth programs in regular City departments (mostly in library and park and recreation systems). Thus we cannot cut more than about $1 million more from the rec centers without violating the requirements of Measure D.

The Police and Fire Departments make up the majority of the General Fund budget

Here's the paradox: Because public safety is so important in Oakland, it has become the largest item in the City's budget. Police and firefighters are the highest paid staff in the City, by a lot. Because the Police and Fire departments make up about 75% of the General Fund, it is not possible to balance the budget solely by cutting just in the remaining departments.

As an illustration, if the City closed down the entire Library system, the savings to the General Fund would be $10 million. (Measure Q covers the other $12 million of Library costs.) If we closed down every Recreation center, the savings would be $12 million. Senior centers cost $2 million. All together, that would total only $24 million. So you can see, even drastic measures such as these (and I am not proposing these) would be insufficient to close a $43 million deficit without also making reductions in Police and Fire spending.

Salary facts. The average annual cost of salary and benefits for one police officer is $190,589. The firefighter average is $ 177,888 . The average City civilian salary with benefits varies by department. In the personnel department it is $109,152. In the library, it is $95,113. In Public Works it is $68,687.

Selling the Golf courses could help in future years, but won't help this year

Despite what you might have read in the San Francisco Chronicle, selling City-owned golf courses is not going to provide revenue to the City this year. I am open to my colleague's idea of selling half the Chabot golf course for residential use, but that is a two-year proposition at best.. It takes a long time to change the zoning, survive the inevitable law suits, etc.

Will a new tax measure solve this problem?

The Mayor's initial proposal for balancing the budget was to ask the voters to approve a parcel tax. However, the reaction to that from the public was almost uniformly negative.

In order for the public to at least have a choice, the Council will likely put some type of measure on the ballot, either a new tax measure for public safety, or a modification of Measure Y that would allow us to continue collecting the current tax ($89 per year per house) even though we fall below the baseline of 739 officers.

However, it is too big a risk to count on a new measure, so we must make the needed cuts now. If we were to refrain from making cuts to the police department now and the ballot measure failed, then we would have to lay-off almost twice as many officers in November, as we would be half-way through the fiscal year. I am not willing to do that.

Many cuts have been made in the past 18 months and more are needed in order to balance the budget.

In the past 18 months, we have shrunk the City workforce by 237 positions; 150 of those were actual lay-offs in occupied positions. Discretionary spending has been cut, including business-related travel for employees. But more needs to be done.

For example, I brought forth a proposal which is coming to Council next week to end free parking for employees in our downtown garages. I also support most of the cuts recommended in Council President Brunner's recently released proposal, including reducing by 10% the pay of unrepresented employees who make over $100,000 (mainly department directors) and reducing the staff in our City Council offices. These examples help send the message that everyone in city government must share in burden of balancing the budget. I hope that our represented employees will contribute to the solution as well.

City Council to make final decisions on June 24 and June 29

The next City Council hearing on the budget will be held the evening of June 24, followed by the final hearing on June 29. Before these meetings, there will be three community meetings to discuss the budget; I hope you will consider attending one of these community meetings to become better informed. (see below for times and locations). The official staff report containing the recommendations will be published at least a week in advance and available on the City's website.

I invite your ideas, comments and questions on these critical issues.

All meetings 7 pm – 9 pm
June 9: Glenview Elementary School, 4215 LaCresta Avenue
June 14: Eastmont Sub-Station, 2651 - 73rd Avenue
June 17: Peralta Elementary School, 460 – 63rd Street

This piece originally apppeared in Councilwoman Patricia Kernighan's monthly newsletter.

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Comments

The Sky is Falling
Dan, it is misleading to discuss employee pension contribution rates without looking at their total compensation packages. Ignoring what employees contribute to CalPers, the city contributes 27% of covered salary (i assume that's base w/o OT?) for public safety employees; 19% for all other employees. ie. employees contribute less than 25% of the total cost of their pensions. For fye june 2009 that came to $98Mill. It is expected by Calpers to increase significantly over next several years. (I don't know how much of that comes out of General Fund). IDF and PK's proposals will help reduce the deficit's but are woefully short of closing the deficits we face in a year or two. Oakland pols won't straight out and put numbers to that reality. So voters continue to think this is just a temporary rough spot and a contract fight.
By : len raphael	On : June, 19 2010 at 01:55 AM


Civilian employees actually contribute 8%, not 5%, to our pension.
By : Dan Rossi	On : June, 18 2010 at 02:29 PM

The Sky is Falling
Oakland parcel and sales tax increases will be needed after our officials have cut expenditures and lowered all compensation employee and outside provider, public security, non security general fund depts, AND compensation paid out of the 600Mill restricted funds budget. Without compensation reductions, we will not be able to improve the quantity and quality of all city services which were often abysmal before the current disaster. Once compensation including retirement benefits are sufficiently lowered, we'll have to raise taxes to hire more employees, replace decrepit infrastructure. We'll have to coordinate that tax increase with OUSD changes because though OUSD budget and control is legally independent from the city's, budget, there is only one well to draw tax money from. -len raphael temescal
By : len raphael	On : June, 14 2010 at 11:12 PM

The Sky is Falling
All tax increases will be resisted until our officials earn the trust of the residents who have watched the Riders, the Edgerly escapades, the Black Muslim Bakery story, Landscape tax nonsense, questionable loans to various "icons", and the Measure Y follies. In the Council Member's op-ed, she emphasized the amazingly generous retirement benefits that every city employee gets, but forgot to mention that the Mayor and all the city council members get the same 0 deductible, all expenses paid retirement plan which the cops get. The cops can make a somewhat shaky justification that they originally gave up a wage increase in exchange for the free retirement plan. But that's more than our elected officials can say for their sweetheard self dealing.
By : len raphael	On : June, 13 2010 at 04:08 AM

The Sky is Falling
Even if you ignore the role that Council played in creating the situation where most all of Oakland's employees are among the highest compensated govt employees in the country, the Mayor and the Council easily had two years to watch this fiscal train wreck approaching. Yes OPD and OFD are among the highest paid in the country. But that's because the Council joined most of the other Bay Area officials in a mad public security bidding war in the last ten years. They justified that by lowering police staffing levels and saying that OT was cheaper than benefits. What's wrong with this pictureZ: Oakland has clerks who get paid more than OUSD teachers with years of training. Directors of non profits making 180k/year and monitored by a mix of political appointees including 20 year old kids. Conveniently just a few days after the June 2008 council elections the first words came out that we had some money troubles, but those were quickly blamed on Deborah Edgerly. The only importance of that history now is to prevent a repeat of those mistakes of the last two decades of city employees getting paid more than private industry plus better benefits than the Federal Government provides. As soon as the economy recovers, Oakland resumes growth, taxes are raised the same pressures from all city employee unions will be applied to the Mayor and Council. The same pressures and incentives offered from nonprofit community organizations to get a share of the goodies. First thing is to stop the panicky rush to come up with a detailed balanced budget by June 30th. If that was so critical why has the CC spend hours of their infrequent public meetings debating the minutae of bakery loans or city employee free parking if we're facing financial armegeddon in a few weeks. Next is to make public a draft of the city's five year financial projection. without such a projection, however approximate, it would be foolish for residents to reach decisions that will affect us for many years. In particular, Council Kernighan omitted any reference to the massive unfunded post retirement medical benefit and pre Calpers underfunded retirement obligations that are coming back to devour us like something out of a Stephen King story. No mention of Calpers multiple warnings of multi million $ increases in annual contributions to make up the losses on Calpers real estate speculations in 2007. All of which is to say, that our Council will never get regain the trust of the residents until it gives them the whole picture well in advance of budget and contract deadlines. Then Council members have to try to lead a consensus among the voters. If they fail, then council will have to make unpleasant decisions about priorites without every politicians knee jerk tendency to borrow their way out of the problem. -len raphael temescal
By : len raphael	On : June, 13 2010 at 03:49 AM

Paragraphs please
Hannah, I won't argue your points, but an occasional paragraph, please.
By : lawngun	On : June, 11 2010 at 01:07 PM

Byron Williams' column in today's Tribune speaks for me.
Written by Byron Williams Thursday, 10 June 2010 If you were in need of an example as to why voters distrust government, you would be hard pressed to find a better illustration than Oakland’s Measure Y. In 2004 nearly 70 percent of Oakland voters passed Measure Y, a public safety parcel tax. Measure Y allowed the City of Oakland to collect approximately $20 million in revenue annually. Voters assumed a “yes” vote meant $4 million would go to fire services, the remaining 40 percent collected would go toward violence prevention programs administered by the City’s Department of Human Services, and 60 percent of the remaining funds directed toward police services, specifically community policing program as well as additional officers for truancy enforcement, domestic violence, and special victims units. Measure Y also prohibited tax collection unless the City “appropriates” sufficient funding (from the general fund) to maintain baseline staffing. This latter point is important because the baseline staffing for police officers was 739. The 63 Measure Y funded officers plus one additional is how the City arrives at 803 officers as its magic number. In the past six years, the City has reached a minimum of 803 officers for no more than six months. Oakland resident and local public entity attorney, Marleen Sacks recently filed a motion for a preliminary injunction to prevent the City from collecting the annual Measure Y taxes because of its failure to maintain the baseline staffing. The City contended as long as it has a line item in its budget for 739 officers it has complied with the requirements of Measure Y. Did Oakland voters support a parcel tax so that their local government could put a line item in the budget for the requisite number of police officers with no real expectation they would actually comply with the Measure Y guidelines? This logic suggest as long as you placed your utility bill as a line item in your personal budget that would suffice in lieu of an actual expenditure. Looking strictly at the law, and not the campaign rhetoric, Alameda County Superior Court Judge Frank Roesch ruled for the City. The Oakland Police Department has an attrition rate of nearly five officers per month. If one is running a business that loses 5 employees per month, is it not incumbent upon them to make provisions to replace those employees? For a police department, holding academies is how one addresses its attrition rate. Yet, no full academies have been conducted since 2008. But police academies are costly; the last one scheduled in November 2008 was canceled saving roughly $4.5 million. Last year, Ms. Sacks brought another suit and Judge Roesch found the City illegally spent between 10-$15 million of Measure Y funds that now must be replaced. Money it doesn’t have. While the City might cite mitigating factors not included in my assessment of the Measure Y debacle, here’s how its projected to the public. If you run a well-known bakery, drive a Ferrari, and may have mismanaged the business, you can still receive $150,000 in bailout from the city on top of more than $200,000 of taxpayer money already allocated. Meanwhile, voters in good faith supported a tax that would provide a baseline number of police officers, plus additional officers designated for community policing, which is key if you are to have any success to the recently instituted gang injunction program in North Oakland, only to realize six years later some funds were used inappropriately, they did not maintain the required staffing, and played word games to get around the spirit of the measure. The problems associated with Measure Y, are the problems associated with direct democracy. I have long been against ballot measures, especially those that ask for funding simply because there is no way to address the unintended consequences inherent in legislation of any type. The unintended consequence, in this case, was insufficient funds to meet the needs articulated. The Measure Y campaign focused on winning. More emphasis was placed on what will garner voter approval rather than what was actually needed. With this stellar record of accomplishment there is actually talk of putting a Measure Y redux on the ballot. The notion of asking voters to support more taxes based on a model that has clearly wasted taxpayer dollars and failed to meet its goals is the height of arrogance and tone deafness that justifiably makes people apathetic and distrustful of government. Good intentions notwithstanding, Measure Y has become but another example of fiscal malfeasance, bureaucratic arrogance, and public disappointment.
By : hannah james	On : June, 10 2010 at 05:32 PM

More taxes and fewer cops
The City Council is about to vote on a resolution to increase the Measure Y tax to over $91.00 per year. At the same time, they are apparently working on a proposal to eliminate the minimum staffing/funding requirements, so that they can continue collecting the tax, and cut cops at the same time. The whole reason we passed Measure Y in 2004 was because it at least contained this accountability provision, and promised us 63 additional officers. We were supposed to have staffing at 802 for the last five years, and we got it for five months. Measure Y has been a RIP OFF. http://defendingmeasurey.blogspot.com
By : MarleenLee	On : June, 08 2010 at 11:18 PM

One more
The majority of the restrictions Ms. Kernighan discusses are a result of direct actions by the City Council -- the current one, for the most part. The language and restrictions of the various measures were crafted by who? City Council. The labor contracts were not only approved, but, in most cases, negotiated by who? Yes, City Council. When certain revenues were bringing in windfall dollars to the City, staff warned it would not last. Staff warned that the dollars should be set aside. Who decided to blow through the money like drunken sailors? That would be our City Council, no? So, you've tied your own hands. How stupid is that? Very.
By : lawngun	On : June, 08 2010 at 06:07 PM

Measure D - Kids First Set Aside
Measure D should never have hit the ballot last year. The City Council knuckled under to the Kids First poverty pimps -- David Kakishiba, Olis Simmons and others. What should have hit the ballot was a repeal of the poverty pimp's dream, Kids First. The Council showed no backbone and no leadership. Do not assume that the people of Oakland wouldn't have voted for a repeal of this waste of General Fund resources over this comprimise measure.
By : lawngun	On : June, 08 2010 at 05:57 PM

Lost
Last year, the Mayor and Council threaten to cut police officers and received stimulus funding of almost $20 million over three years to fund 41 officers. This year they are threatening to cut 200. I assume the City will not accept any more of the federal funds. To do otherwise would be supplanting. If you thought the auditors gave the City a hard time on the jobs money it misspent -- just wait.
By : lawngun	On : June, 08 2010 at 05:51 PM

Mis-Use of Measure Q Funds?
A commentator on A Better Oakland mentioned that 2/3 of Measure Q fund expenses approved by the City Council went to salary increases. NOT new libraries, books, or other services. Wonder if this is true? If so, yet more mis-spending of Tax Measures we pass? (If not the letter, then the intent).
By : livegreen	On : June, 08 2010 at 12:44 AM

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