Although Oakland saved for a rainy day, the predicted $80 million budget shortfall resulting from the coronavirus crisis will be one of the worst in the city’s history

Due to the coronavirus shutdown, Oakland is facing a financial shock potentially worse than the foreclosure crisis and Great Recession of a decade ago.

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City workers worry that plummeting tax revenues will lead to mass layoffs, and cuts to departments and programs that were already running “lean” before the coronavirus pandemic.

City officials are scouring the budget for potential cost-cutting measures while lobbying state and federal lawmakers for a fiscal lifeline.

“I am sad that governments everywhere are going to have to make incredibly difficult choices,” Mayor Libby Schaaf said today in an interview.

So much about the situation remains unknown, making planning difficult. Although California and the Bay Area slowed the spread of the coronavirus with early and aggressive shelter-in-place orders, a vaccine that will allow the economy and schools to reopen could be more than a year away.

At a meeting of the Oakland City Council Tuesday afternoon, councilmembers were briefed about the fiscal consequences of this unprecedented crisis. “None of us have ever seen such a precipitous drop in revenues in such a short period of time,” Oakland Assistant City Administrator Ed Reiskin told the council.

The city’s budget director, Adam Benson, wrote in a memo to the council on April 16 that the city is facing an $80 million budget gap over the next 14 months or about 12% of the city’s annual general fund spending. According to Benson, the size of the shortfall is roughly equal to the annual cost of staffing all of Oakland’s 25 fire stations, or the cost of employing 320 police officers, about half the police force.

“The size and scale of these revenue shortfalls is like nothing Oakland has ever before experienced,” Benson wrote.

The city of Oakland has already implemented a hiring freeze to save money while it considers other options. Several hundred temporary and part-time city employees, including some library and parks staff, have already been laid off, according to the city administration.

“We learned some hard lessons”

Schaaf noted that Oakland is in much better fiscal shape today than it was in 2008, when the housing crisis tanked the city’s budget. The city had to bridge a $91 million budget shortfall in its 2009-2011 budget by making repeated multi-million dollar cuts, including staffing reductions. In 2010, the city laid off 80 police officers to cut another $30.5 million in spending.

“We learned some hard lessons. It’s not just horrible impacts to services and lives when you have to furlough people and lay them off, but the pain of rebuilding is also real,” said Schaaf. “Oakland has still never completely recovered from cuts during the recession.”

In 2014, as Oakland was coming out of the last recession, the city council created a rainy day fund. Five years of booming growth ensued, including the collection of many millions in real estate transfer taxes, a portion of which are automatically deposited in the rainy day fund. Oakland also used some of its large increases in real estate transfer taxes to pay down long-term liabilities and debts, such as underfunded pension obligations. The city’s rainy day fund currently amounts to $14.6 million, which can help bridge the current shortfall.

Zac Unger, president of Oakland’s firefighters union, said he hopes the city council holds off on making any cuts to staffing until more is known about the region’s economic situation. During the last crisis, Unger said, the city laid off an entire graduating class of firefighters as a cost-saving measure. Unger said that created a staffing crisis in the fire department that lasted for four years. Meanwhile, understaffing in the fire and police departments hasn’t generated significant savings since firefighters and police officers work overtime to backfill many of the empty positions.

“That kills the morale,” said Unger.

As essential workers, Oakland’s firefighters remain on the job during the pandemic. Earlier today, they responded to an apartment fire near Lake Merritt.

“I would like the city to step up to the plate to keep our workers employed,” said Felipe Cuevas, the Oakland union chapter president of SEIU 1021, the city’s largest union. “There’s plenty of essential work we do. Just cutting across the board is not going to work. It’s not gonna help us in the long run.”

Cuevas said there are numerous vacant job positions currently in the Public Works Department, where he is employed. Public works is responsible for repairing city sidewalks, bike paths and streets, and cleaning around homeless camps, among other basic services.

Kristen Schumacher, a research specialist on staff with IFPTE Local 21, which represents many of Oakland’s professional and technical employees, said Oakland already sent many of its workers a letter notifying them that the city is contemplating layoffs.

“We’re trying to stress to city leadership that in this moment when the city seems to be taking dramatic action, it’s starting to look a lot like a repeat of 2008,” said Schumacher.

Local pressure for more federal funding

All of the city’s unions are urging Oakland to seek more federal and state funding, which could prevent bone-deep budget cuts.

Last month, the federal government passed the CARES Act, a $2 trillion coronavirus relief package, but Oakland and similar-sized cities aren’t eligible for direct relief from the $150 billion set aside to bail out local governments. Only cities and counties with populations above 500,000 can apply for direct funding. Oakland’s population is around 430,000 residents, according to census data.

On April 17, Schaaf and the mayors of California’s other 12 largest cities sent a letter to House and Senate leaders asking for a major expansion of aid, including a $750 billion relief fund for cities with as few as 300,000 residents.

“I hope the public understands that the only level of government that can do deficit spending right now is the federal government,” said Schaaf. “By law, the city, county and state have to pass a balanced budget. The federal government is the only one that can issue these types of stimulus packages.”

Schumacher, the IFPTE Local 21 researcher, believes there’s plenty the city can do right now to address the predicted shortfall without cutting staff, including freezing hiring for vacant positions, tapping into the rainy day fund and suspending the city’s fiscal policy, which requires contributions to the rainy day fund and pay downs of long-term pension and healthcare liabilities.

The city also may be able to free up millions in so-called “carry-forwards,” Schumacher said, by halting previously funded projects that haven’t started and can be indefinitely paused during the crisis, including construction.

Unger of the firefighters union said he wants the city to move cautiously and methodically, and to only make cuts once it’s clear they’re unavoidable. “Let’s not overreact and scar our city,” he said.

“What I think we can agree on with the unions is, fast and decisive action that doesn’t affect the workers is what we should be doing first,” said Mayor Schaaf. “Things like a hiring freeze and suspending payments toward [retiree healthcare and pension] liabilities and contributions to the rainy day fund—those make sense.”