What the hell is going on with Oakland’s budget?

How we got here and the culture of denial that prevents real solutions from emerging

Nov 24, 2024

People are sounding the alarms on the state of Oakland’s budget.

At a special city council meeting last week, City Administrator Jestin Johnson revealed the city must cut $115M in spending by the end of the calendar year.
Days earlier, the city published and quickly took down a finance report that warned of the path to “insolvency” and “Chapter 9” bankruptcy.

Big picture: These budget warnings are nothing new — but time is running out. The fiscal year runs through June 2025, so decisions on budget cuts must be made by the end of this year to ensure there’s enough time to implement those cuts and close the gap in the first half of 2025.

How did it get this bad?

Oakland’s budget crisis didn’t appear overnight — it’s the result of years of denial, shortcuts, quick fixes, and an unwillingness to make tough decisions.

Ignoring the structural deficit. For years, the city relied on one-time revenues — like transfer taxes from property sales, temporary tax windfalls, and federal and state COVID relief funding — to patch holes instead of addressing the fundamental issue: Oakland spends way more than it earns. And it’s not overspending on things like parks and roads, it’s on city employee pension plans and wage increases (more below).
Declining revenues. Our key revenue sources — hotel taxes, development fees, and transfer taxes — are way down. These volatile streams were risky to begin with and have now dried up.
Public safety concerns. High crime rates are scaring off residents, businesses, and tourists. This undermined the historically stable revenue sources like property and sales taxes — sales tax revenue was down 11.7% — which only deepened the hole.
Skyrocketing pension costs. City employee pension costs have skyrocketed, growing more than 3X over the past decade, and their total compensation has grown 2.5X faster than inflation.
- In 2023 alone, Oakland spent $450M on pension costs and above-inflation wage increases — which is more than both police and fire budgets combined.
- Of that, $280M went to cover pensions for current and former employees, enough money to fund 900+ sworn police officers.
- While public servants like firefighters and police officers take on risky jobs, these costs are unsustainable and are killing Oakland’s financial viability.
- Truthfully, Oakland today looks less like a municipal services provider, and more like a retiree benefits supplier.

Where will budget cuts come from?

Labor unions and city officials are locked in a blame game about who should bear the brunt of the cuts.

But Oakland’s budget isn’t just one big pool of money — it’s divided into the General Purpose Fund (which pays for most safety services) and other ‘restricted’ funds (earmarked for specific uses like parks, libraries, and infrastructure).
Two-thirds of the budget is from ‘restricted’ funds, making it nearly impossible to slash non-safety departments entirely.
By contrast, 90%+ of police funding comes from the General Purpose Fund, leaving OPD disproportionately vulnerable to budget cuts.

For example, Oakland libraries could lose the $12M it gets from the General Purpose Fund and still retain 76% of their funding through restricted sources. The same applies to OakDOT (77% from restricted funds), public works (99%), violence prevention (70%), and parks (70%).

No one wants to take money away from parks and libraries, but cutting budgets isn’t simple. There are consequences when a city’s budget is so grossly mismanaged — and unless we get things in order, Oakland is on the path to insolvency, or even bankruptcy.

Police funding under fire

There’s a lot of misinformation about OPD’s budget and overtime costs. But here’s the reality…

Overtime cost isn’t all to blame (yet): OPD’s budget was cut in October, but layoffs aren’t allowed under union agreements. Instead, they’re reducing costs gradually through attrition (i.e. not filling vacant positions). Overtime spending forecasts depend on many assumptions that may not reflect actual operational needs.
‘Burden’ costs are the real issue: For every full-time employee, the city pays an additional 78% of their salary toward pensions, healthcare, and other benefits — this is known as the ‘burden’ rate. Even if the city fires an employee, it still has to pay ~50% of their salary going forward to cover those costs. This makes hiring and firing officers extremely expensive. It’s actually cheaper to pay an officer overtime than to hire or fire one.

The paradox is that while the city continues to slash police budgets, it still expects OPD to maintain the same level of service. With fewer officers, the remaining workforce is stretched thin, leading to higher overtime costs.

Still, OPD’s overtime numbers raise an eyebrow and all departments need to be extra mindful of spending during this time.

OPD also needs to start thinking outside the box on how to do more with less (e.g. using more technologies like Flock cameras and drones) and to do it more efficiently and effectively. When officers spend 80% of their patrol doing paperwork, costs will continue to go up with no results to show for it.

Culture of denial

Oakland’s leaders have avoided making the hard choices for years. Last week for example, council members were more focused on increasing future revenues, instead of reigning in current spending.

Ironically, growing future tax revenue would require there being more residents, businesses, and tourists — but their policies continue to make Oakland less desirable.

The result: Businesses are leaving, residents are moving, property values are stagnant, and the city is forced to make budget cuts that will make Oakland even less attractive to its remaining residents. It’s a downward spiral that must be stopped.

The budget cuts will have tangible effects: longer 911 response times, fewer resources to address already high crime rates, worsening public encampments, delayed street repairs, and reduced efforts to combat illegal dumping.

Ultimately, cutting budgets isn’t a long term solution. We shouldn’t have to trade fully funded libraries for out-of-control pensions costs.

But if we don’t get things like those pension costs in order, those are the tradeoffs our leaders are not just forced, but choosing, to make.
To balance our budget sustainably, we need bold leadership and acknowledgement of our current reality.

Bottom line: Oakland is at a financial breaking point. Upcoming decisions will affect our safety, schools, and services for years to come. As voters, we must ask ourselves how, why, and who got us here — and demand that Oakland’s leaders live in reality so they can focus on real solutions.

In the news…

High-ranking finance official leaves Oakland during budget crisis (Oaklandside)
Borenstein: The different ways the Omar Torres, Pamela Price, Sheng Thao and Nikki Bas seats will be filled (Mercury News)
Bombshell report that warned of Oakland facing bankruptcy is deleted, replaced (East Bay Times)
Oakland faces risk of fiscal emergency amid gaping budget deficit, officials warn (SF Chronicle)
Recalls, Trump’s return, and doom-loop politics: Oakland residents reflect on 2024’s earth-shaking election (Oaklandside)