City Administration Directs $29 Million in Immediate Cuts to Curb Projected $62 Million Deficit

Date Posted: December 22nd, 2020 @ 11:26 AM
Last Updated: December 22nd, 2020 @ 11:44 AM

Oakland, CA – The City of Oakland announced $29 million in immediate spending cuts and other cost-savings measures to begin to close a projected year-end $62 million deficit in the General Purpose Fund (GPF). The Administration announced a $9 million general personnel and spending cuts last week, and now adds an additional $20 million in public safety expenditure and service reductions this week. Despite the severe impact to the city’s fire and police services, these actions alone are insufficient to resolve the projected $62 million deficit. A shortfall of $33 million remains. The report will be presented to the Oakland City Council at a special meeting on Wednesday, December 23 at 11 am.

The COVID-19 pandemic has had a devastating impact on Oakland residents, the livelihood of their families, and the finances of the City. With no direct federal relief included in the most recent stimulus package, the City must begin to take responsible actions to address the massive shortfall. In a letter to City employees last week, Mayor Libby Schaaf and City Administrator Ed Reiskin were candid about the severity of the situation: “To be direct, absent immediate and significant expenditure reductions, the General Purpose Fund will be insolvent before the end of the fiscal year. The City will not be able to fund essential services or respond to emergencies like an earthquake or natural disaster. Even the City’s emergency reserve will be completely exhausted. Although Oakland is not alone in this crisis, this situation represents one of the most serious financial challenges the City of Oakland has ever faced. The impacts on City services are unavoidable and will be significant. We are determined to face these challenges now to lessen the long-term and most devastating impacts. If we wait until next fiscal year to address the shortfall, the cuts would be catastrophically deep, and we will be forced to make cuts that could be avoided by acting now.”

The fiscal crisis caused by the COVID-19 pandemic requires immediate and devastating but necessary service cuts. Given the urgency of the financial situation and the fact that the sooner the City acts the less the deficit will grow, most of these cost-cutting measures will take effect immediately; a few may take some time to fully implement.

Every dollar of expenditures that will be reduced translates into services that will not be provided to the public. As the City’s public safety agencies comprise a majority of GPF expenditures, the Police and Fire departments must bear the largest cuts and service impacts in order to address the GPF deficit. Other actions, such as freezing vacant GPF-funded positions in all departments will also reduce the level of service they provide.

These service cuts are being made only through June 30, 2021. Staff are hopeful that Federal or State Aid and a rapid economic recovery will allow the City to restore these critical services as soon as possible. We recognize that vital public safety employees are already stretched and have been working under the most challenging conditions as First Responders during the pandemic. The Oakland Police Department has long had the lowest officer-per-crime staffing level of any police department in the country. The City would not be making these service reductions if staff were not certain it is absolutely necessary to prevent the critical General Purpose Fund within the City’s budget from becoming insolvent.

The cost-reduction measures and the estimated cost savings of each are summarized in the table below:

General Personnel and Spending Cuts

$9 million approx.)

  • Hiring freeze for non-sworn (civilian) positions

$5.4 million

  • Reduce use of temporary staff

$1 million

  • Further reduce unspent funds carried forward from last fiscal year

$2 million (possible)

  • Pay reductions for senior staff not represented by a labor group

$0.5 million

  • Freeze discretionary spending

$0.1 million

Public Safety Reductions

$20 million

  • Police—reduction in overtime, specialized units, programs

$15 million

  • Fire—temporary brownout of 3 Fire Engine companies

$5 million

TOTAL

$29 million

OPD Service Reductions ($15 million)

For more than a decade the Oakland Police Department has exceeded its Adopted Budget. Both the City Council and the City Auditor have acknowledged that the Administration and City Council have consistently under-budgeted police overtime, particularly in light of increased costs and historical need. In the most recently closed fiscal year, FY 2020-21, OPD exceeded its budget by more than $32 million. The Q1 (first quarter) expenditure forecast for the current year similarly projects OPD exceeding its budget. Reduced services are immediately necessary to address the City’s precarious fiscal condition.

OPD does not recommend any service cuts due to the City’s ongoing and escalating violent crime problem, but recognizes and embraces the need to achieve immediate savings due to increasing budgetary shortfalls. These reductions preserve core services of patrol and investigation, ensuring that the basic work of the department can continue.

The items listed below comprise both discretionary overtime and specialty units corresponding to assignments of personnel that could be shifted back to patrol. Expected impacts of the service reductions listed below are detailed in the Administration’s Informational Report to City Council.

Summary of Service Reductions and Potential Savings

Overtime Function

Estimated

Six-Month Savings

Site Security & Traffic Control*

1,017,000

Sports, Entertainment, and Coliseum*

300,000

Sideshow Enforcement

803,000

Area Crime Response & Admin

1,570,000

COVID, Mutual Aid, and PG&E PSPS*

349,000

Uptown Walking

300,000

Patrol Wagon

35,000

Demonstrations & Gatherings

1,289,000

Homicide / Ceasefire Op and Warrant Service

307,000

Training

39,000

Lake Merritt Patrol

3,500

Traffic Operations

156,000

Other Coded Tasks

6,500

Discontinue all Discretionary Overtime Subtotal

6,175,000

Reduce Backfill Overtime

1,000,000

Total Overtime Reduction/Savings

7,175,000

Operational Unit / Function

Estimated

Six-Month Savings

Defer One Police Academy

1,000,000

Transfer the OK program to non-GPF source (pending)

320,000

Suspend Youth & Schools Services Program

137,500

Suspend Police Activities League (PAL) Program

106,500

Suspend Alcohol Beverage and Tobacco Unit

606,500

Suspend Unsheltered Unit (pending SEIU meet & confer)

351,000

Reduce Traffic Investigations Unit

320,000

Suspend Traffic Enforcement Unit

991,000

Reduce Ceasefire Unit by 25%

991,000

Suspend Foot Patrol Unit 1

991,000

Suspend Foot Patrol Unit 2

884,000

Suspend 8 lowest crime beat Community Resource Officers

853,500

Reduce Helicopter Maintenance Budget

250,000

Operational Unit / Function Subtotal

7,802,000

GRAND TOTAL

14,977,000

* Indicates partial reimbursement for overtime

Fire Department Service Reductions ($5 million)

To achieve a reduction in OFD expenditures of $5 million by the end of the fiscal year, the Administration will temporarily brownout the operations of three (3) Fire Engine Companies, out of the 25 Fire Engine Companies and 7 Fire Truck Companies that usually operate, during the low fire season from mid-January through June. This level of temporary reduced availability is comparable to what Oakland has done in the past. Consideration of reducing fire engine availability is not something considered lightly; it is a reflection of our severe fiscal situation that it is included in this plan. This service reduction is contemplated in the Local 55 MOU under these dire financial conditions.

The closure of three fire engine companies, either on a permanent or rotating basis, is likely to have an impact on emergency response. While the districts containing the closed firehouses will be the most impacted with slower response times, districts surrounding the closed firehouse will also be affected as there will be decreased coverage overall and Oakland Fire Department (OFD) dispatch will have fewer options to rely upon.

OFD responds to approximately 55,000 emergencies per year or on average 4.7 responses per company per day. The closure of three engine companies is likely to cause approximately 14 calls per day to be diverted to other engine companies. Since the fire stations are fixed geographically, staff is estimating that approximately 11 calls per day for emergency medical responses will not meet the National Fire Protection Association standard.

Cost-Cutting Measures Total $29 Million; $33 Million Deficit Remains

All of the actions above total approximately $29 million in estimated savings for the GPF. While necessary, these actions alone are insufficient to resolve the $62 million estimated deficit projected by the end of the fiscal year. A deficit of $33 million remains that will need to be addressed by further reductions in services or seeking employee concessions. These actions will certainly have an impact on our ability to deliver critical services to Oakland residents, but are necessary to ensure the solvency of the City’s GPF.

BACKGROUND ON CITY BUDGET

No City Council action is required to implement the $29M in cost-saving measures outlined above. The Charter provides the Council with the sole authority to appropriate funds, and the Charter provides the responsibility to the City Administrator to “control and administer the financial affairs of the City.” In execution of that responsibility, the Administration is reducing expenditures of appropriated funds to align with declining actual revenues.

COVID-Related Economic Impacts Drive Historic Deficit

On December 7, 2020, staff presented an informational report to the Finance Committee on last fiscal year’s fourth quarter and this fiscal year’s first quarter revenue and expenditure results. The combined analysis revealed that if no corrective action were taken, all GPF emergency reserves would be exhausted, and we would have an estimated $62 million deficit in the GPF by the end of the current fiscal year.

The cause of the deficit is a combination of the continued negative economic impact of COVID-19 on City revenues, currently forecasted at the first quarter to be $13.63 million lower than the Adopted Midcycle Budget, and forecasted overspending of $18.24 million in the GPF, resulting in a total projected shortfall this fiscal year of $31.87 million. When added to the $30.42 million year-end shortfall last fiscal year, the cumulative total deficit is $62.29 million.

Year-End Shortfall Last Year (FY 2019-20)

$(30.42)

Projected Year-End Shortfall This Year (FY 2020-21)

$(31.87)

Cumulative Deficit

$(62.29)


The GPF compromises 38% of the total City of Oakland budget. The restricted funds may only be used for their specified purposes, as provided by law, and may not be used to backfill GPF

shortfalls. The GPF budget must remain balanced by law. Other restricted funds in the City of Oakland’s budget are also experiencing shortfalls, but the GPF shortfall is the most dramatic and in urgent need of correction.

Guiding Principles for the Budget Process

As we address this unprecedented situation, we are guided by these fundamental values in our decision-making:

  • Equity. We seek to avoid reductions that would be felt disproportionately on low-income communities of color. In the police reductions for example, the specialty unit for Abandoned Autos is not proposed for suspension because it would impact the low-income neighborhoods where abandoned autos are disproportionately causing blight.
  • Preserve core services and staffing levels. Whenever possible, we seek to prevent cuts in current service levels for Oakland residents and preserve staffing levels for City workers who are stretched thin under increasing demands.
  • Fiscal responsibility and long-term financial health. Our focus is on our addressing our current fiscal health while preparing to rebound once the economy recovers. We owe it to our employees and the public to work within our organizational and financial capacity and continue to focus on strategies that will preserve the long-term financial health and sustainability of our city.

Previous Actions Taken to Address COVID-related Economic Impacts

Last June, to begin addressing the economic impacts of COVID-19, the City Council approved a FY 2020-21 Midcycle Budget that included the following reductions and use of reserves:

  • Used all of the Vital Services Stabilization Fund (VSSF) / Rainy Day Fund reserves of $14.65 million to preserve services in the GPF;
  • Temporarily froze various vacant positions and reduced Operations & Maintenance (O&M) costs such as contracts, grants, equipment, supplies, etc. across all funds and departments;
  • Appropriated FEMA reimbursement and CARES Act funding for eligible COVID-19 related costs.
  • Suspended contributions to long-term liabilities (including Other Post-Employment Benefits), yielding approximately $10 million in savings across all funds; and
  • Saved approximately $1.96 million in the GPF by restructuring the negative fund repayments plan. Transferred eligible costs (both personnel and O&M) from funds with shortfalls to other funds with surplus resources.

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Media Contact

Karen Boyd

Citywide Communications Director

KBoyd@oaklandca.gov