Budget woes have Oakland mulling bankruptcy On the East Bay

Ignacio De La Fuente, President Oakland City Council, during the Inaugural Ceremony. Ron Dellums is scheduled to be publicly sworn in as Oakland's 48th mayor at the city's official inaugural ceremony at the Paramount Theatre on Monday, January 8, 2006. less Ignacio De La Fuente, President Oakland City Council, during the Inaugural Ceremony. Ron Dellums is scheduled to be publicly sworn in as Oakland's 48th mayor at the city's official inaugural ceremony at the ... more Photo: Lea Suzuki, The Chronicle Photo: Lea Suzuki, The Chronicle Image 1 of / 1 Caption Close Budget woes have Oakland mulling bankruptcy 1 / 1 Back to Gallery

Even though city officials would prefer to avoid a public conversation, behind closed doors the Oakland City Council has discussed filing for bankruptcy protection in the midst of a $100 million budget deficit.

"We have asked the (bankruptcy) question because we wanted to know the impact," said District 5 council member Ignacio De La Fuente. "In closed session, the question has been asked, and an answer was given." He would not elaborate.

"It's a possibility," he acknowledged. "Things are that bad."

Council President Jane Brunner was equally aloof. She ably acknowledged the city's dire financial problem while managing to avoid the b-word altogether.

"We're going to try to avoid it, but am I going to say it would never happen? I can't say that," Brunner said.

Consider the city's cash position: Out of next year's general fund of approximately $415 million, police costs are estimated at $212 million, fire protection service $103 million and $41 million in debt service payments. That leaves about $60 million to pay for everything else, from library services to recreation centers to public works.

And that calculation doesn't include $50 million more in deferred debt service in a budget proposal presented to the council last month by Mayor Ron Dellums.

"We are in the worst recession since 1981," said UC Berkeley Professor John Ellwood, an economist who worked in the Congressional Budget Office. "This recession is a bit different in that it's being driven by the housing bubble, but as more and more people ask for property-tax reassessments, it's going to leave a huge funding gap for cities," Ellwood said.

It's already begun. Alameda County Assessor Ron Thomsen said tax assessments fell $13.6 billion in the fiscal year that will end June 30. "Our assessment roll will go down 2 percent, and we've never had a year-to-year drop ever in stats going back to 1958," he said.

Like a rock rolling downhill, those reduced property-tax revenues will be passed onto cities by a state government facing its own economic calamity created by a mammoth $24 billion budget shortfall.

That will leave Oakland, which receives about 15 percent of the county's annual property-tax revenues, in an even deeper hole. And with half of 2009 already in the rear view, the estimates on next year's property tax revenues are even lower, Thomsen added.

For the City Council, which is expected to present more budget options next week, it is the end of the line.

It is faced with three choices: drastic pay reductions across the board, including police and fire services; massive layoffs; or bankruptcy.

It has been a great run for municipal employees in Oakland and across the state, who have been the beneficiaries of one of the most generous civil service systems in the nation.

Since the late 1940s, California municipal governments traditionally have employed fewer employees, who have been paid substantially more than other civil servants, Ellwood said.

Add to the economic mix the union labor contracts in Oakland, which have provided city employees with high wages, good benefits and generous pension plans, and the problem is clear.

Barring a substantial cash transfusion in federal aid, the Oakland Police Department will lose close to 200 officers next fall unless Dellums, who's in Washington, D.C., this week, succeeds in securing more than $60 million over the next three years.

A federal grant in any amount would help maintain the minimum requirement of 739 sworn officers.

Any Oakland resident will gladly tell you that the possible loss of 200 police officers on the streets of this city is a bone-chilling thought.

If Dellums was ever serious about his plan to bankroll the city with his clout on Capitol Hill and in foundation board rooms, now would be the time to call in all his markers.

Because in the absence of a federal bailout package, De La Fuente said no formula for success would be achieved without making cuts to the Police and Fire departments.

If the city adopts Dellums' budget recommendation and lays off 140 police officers, it would dip below the minimum requirement of 739 officers and would trigger the loss of bond-measure funds that pays the salaries of an additional 63 police officers. Adding further woes to the budget, the police officers have negotiated a 4 percent pay raise scheduled to kick in July 1.

Given the city's economic limits, De La Fuente said the city can't honor the pay raise and maintain the force at its current size.

"We're required to give them the (salary) increase, but it will require us to do other things within the budget to achieve the savings we need," he said.