What’s in the budget

City staff released its first draft of the budget for the next two fiscal years Thursday, and here are salient features (we hesitate to call them “highlights”):

  • The City is projected to lose money in the fiscal year ending June 30, 2021, and the budget also forecasts operating losses in the following two fiscal years, 2021‑22 and 2022‑23.
  • The City will pick up the tab to keep employed the 12 firefighters whose salary and benefits have been paid, in whole or in part, by a series of expiring federal grants.
  • The budget provides funds sufficient to maintain the current authorized staffing levels for the police through June 30, 2023.  No cuts in the departmental budget are proposed, and no funds are designated for a “CAHOOTS”‑style program in which civilians replace cops on mental-health calls.

Now, we fully expect that the budget will change once Council gets its hands on it.  Indeed, since Council has scheduled a special meeting on May 8 to consider a referral by Mayor Marilyn Ezzy Ashcraft and Councilwoman Malia Vella on police reform, the draft budget may be out of date before the first budget workshop is held on May 11.

With that caveat in mind, we’ll offer today a few comments on the bulleted items.

First, the big picture.

The draft budget prepared by staff projects an operating loss of $2.3 million in FY
2020-21, which ends on June 30.  Even with this loss, the City still will finish the fiscal year with “surplus” cash in the General Fund – i.e., funds not committed to maintaining an “operating reserve” – and staff recommends that the City use $10.1 million to pay down its unfunded pension liabilities (which amounted, as of June 30, 2019, to $191 million for the “safety” plan covering firefighters and cops and $86 million for the “miscellaneous” plan covering other municipal employees), and “carry forward” $4 million to supplement revenues during the next two fiscal years.

Essentially, these “carryovers” will cover the operating deficits built into the two-year budget, which projects a $1.7 million operating loss in FY 2021‑22 and a $2.3 million operating loss in FY 2022‑23.  By June 30, 2023, the General Fund balance is expected to have fallen to $20 million – below the threshold set by prior councils for the “operating reserve.”

Now, we fully expect that certain of our politicians will dismiss these numbers as too conservative – even alarmist.  Indeed, that was the charge (and worse) leveled against City Treasurer Kevin Kennedy and City Auditor Kevin Kearney – as well as a succession of City finance directors – whenever they issued similarly pessimistic forecasts in the past.  “You said you’d be the last one to turn out the lights,” we recall one Council member mocking Mr. Kennedy.  “But the lights are still on.”

But this time the projections will not be so easy to write off.  A few weeks ago, Council heard from an independent consulting firm known as Urban Futures, Inc., to whom it had given an $80,000 contract in May 2020 to prepare a “financial forecasting model and associated strategies” for the City.

Thanks to the new rules of order adopted by Council, the consultants’ presentation was limited to all of 10 minutes – and they didn’t get their turn until the very end of a lengthy meeting.  But even the truncated presentation was enough time for the consultants to confirm what the in-house financial experts had been saying all along.

One of the slides shown by UFI made clear that the budget surpluses the City has enjoyed since the recession ended in 2008 had resulted largely from “one-time revenues” such as property transfer taxes generated by the sale of large properties, and the consultants had no basis for predicting when (if ever) they would occur again.  Moreover, their analysis showed that the growth in “baseline” revenues began to slow in FY 2018-19 and that there was an “uptick” in “baseline” expenses this fiscal year (separate and apart from expenses related to the COVID‑19 pandemic).

In light of these trends, UFI projected that the City will experience an operating deficit in each of the next seven fiscal years.   Here’s their chart:

The consultants pointed out that these losses would reduce the operating reserves in the General Fund below the threshold level, and they even presented a couple of scenarios where the drawdown would be even worse.  (The chart also showed the trend turning around in FY 2027-28, but it’s not exactly clear why.)

Unfortunately, in its eagerness to meet the midnight curfew set by Mayor Ashcraft, Council didn’t avail itself of the opportunity to cross-examine the consultants about their forecasts.  (Only Council members Trish Spencer and Tony Daysog seemed interested anyway.)  But if the consultants are to be trusted, Council should be aware that every additional expense it approves in the next two fiscal years will have to be paid for, not out of on-going revenue, but out of the General Fund balance – with an accompanying elimination of any remaining “surplus” followed by depletion of the previously established “operating reserves.”

Next, the fire department.

Back in 2009, the City successfully applied for a so-called “SAFER” – it’s an acronym for “Staffing for Adequate Fire and Emergency Response” – grant from the federal Department of Homeland Security.  The grant allowed the City to hire six new firefighters – with the feds paying all of their salary and benefits for two years.  The grant was renewed for another two years in 2011 and 2015 and for three years in 2018 – but the last renewal came with a twist:  the feds would pay only a portion of the salary and benefits, and the City was on the hook for the rest, which came to $1,166,671 over the three-year period.  This additional expense apparently caused no concern for Council, which unanimously voted to approve it.

Then the opportunity arose for the City to double down:  it could get a second SAFER grant and hire six more firefighters.  So the fire department applied for and received another grant in September 2019.  Like the renewed version of the original one, this grant required the City to put up “matching funds”:  $995,083.50 over a three-year period.  Again, Council okayed the General Fund expense (this time with Councilman Daysog dissenting).

Each time the SAFER grants came before Council, the staff reports contained a similar disclaimer:  the grant covered salaries and benefits for only a limited period, and “there is no commitment, nor expectation on the part of DHS or FEMA, that these additional positions will continue past the conclusion of the grant.”  While she was a Councilwoman, Ms. Ashcraft got Fire Chief Edmond Rodriguez to verify for the record the ephemeral quality of the funds.  “If there is no new grant money or other outside funding source” when a SAFER grant expired, she asked in October 2018, “the City is not obligated to continue those positions – is that correct?” “Correct,” the Chief replied.

But there were those who knew better.  Was there really ever any chance that Council would let the six, then 12, firefighters go when the respective SAFER grants expired?  Of course not.  Was it therefore likely that Council would authorize paying the salaries and benefits for these additional sworn personnel out of the General Fund?  Of course.  Did the pro-union Council majority care that this would add to the operating deficit that the City already was expected to sustain?  Don’t even bother to answer.

The next two fiscal years are when these suspicions will be borne out.  One of the SAFER grants expires in February 2022, and the other in March 2023.  The draft budget provides that, after each grant ends, the City will begin picking up the tab for the full salaries and benefits of the firefighters who had been hired with the grants.  According to the staff report, this will result in additional General Fund expenses of approximately $532,000 in FY 2021‑22 and $1,792,000 in FY 2022‑23.  Put another way, roughly a third of the operating deficit in FY 2021‑22 and more than half the operating deficit in FY 2022‑23 can be traced to keeping the 12 “SAFER firefighters” on the City payroll.

As we have previously reported, fire department staffing levels have escalated since politicians loyal to the firefighters’ union took control of Council.  The faces may differ, but the trend has been the same:  When Marie Gilmore was elected Mayor and Rob Bonta was elected to Council in 2010, the authorized staffing level for the fire department was 93 sworn personnel.  Now, that number has risen to 110, which includes six division chiefs, one of whom acts as deputy chief.  And that’s where it’ll stay if the current Council approves the draft budget.  (As we discuss below, there also may be more yet to come.)

Finally, the police department.

Our readers will recall that, after the Mali Watkins incident last May, certain of our local politicos jumped on board the “defund the police” movement that was animating “progressives” across the country after the killing of George Floyd.  Vice Mayor John Knox White, joined by Councilman Jim Oddie, sought to get their colleagues to adopt immediately a resolution “identifying” up to 42 percent of the police department budget to “reallocate” towards “programs that support public health. . . .”  Not to be outdone, future Council candidate Amos White, purporting to speak on behalf of “ACLU People Power,” wrote a letter to the Alameda Sun demanding that Council “enact an immediate 50 percent reduction in APD’s budget and reallocate funding for community support programs.”

The “defund the police” crowd is likely to be extremely disappointed when it sees the draft budget.  Not only is the police department budget not cut by 42 percent or 50 percent, it actually increases from $36.9 million in the FY 2020‑21 budget (as amended last December) to $41.4 million in FY 2021‑22, and $42.7 million in FY 2022‑23.

The staff report does not explain the reasons for the increase, but it appears that Mr. Levitt has decided in favor of maintaining the current authorized staffing level at 88 sworn officers.  In that regard, he may be simply adhering to his understanding of the most recent Council directive.  At its March 16 meeting, Council voted unanimously to approve the recommendations made by the police reform steering committee, one of which was that the City “should continue to hire APD officers to the number authorized in the budget of 88 with bimonthly updates to the City Council on the staffing number until 88 is reached.”

The increase in the police department budget over the next two fiscal years flows inevitably from the decision to maintain an 88-person staffing level.  The contract between the City and the Alameda Police Officers Association expires at the end of this year, and Council’s “closed session” agendas show that negotiations for a new one are taking place.  The firefighters’ union recently secured a new MOU providing for two percent annual pay hikes in January 2022 and January 2023, and the cops usually get what the firefighters do.

But even if they’re treated differently, the police department’s labor expenses will go up anyway simply as a result of the increase in the annual contribution the City will be required to make to CalPERS for safety employee pensions.  According to an exhibit to the staff report, the City’s annual required contribution for the safety plan will rise from 60 percent of projected payroll in FY 2019‑20 to 69 percent in FY 2021‑22 – and the annual valuation reports done by CalPERS foretell an even higher number for FY 2022‑23.

Unlike the fire department, there will be no additional personnel added to the City’s payroll in the police department – with one exception:  a “crime analyst” whose salary and benefits (estimated to be $177,000) will be paid out of the General Fund.  Hiring an analyst also was one of the recommendations made by the police reform steering committee and approved by Council.

The decision not to slash the police department budget should not be seen as a rejection of the idea of turning over certain functions now being performed by the cops – like responding to mental-health calls – to other personnel.  Taking funds away from the police department isn’t the only way to pay for such a program.  For one thing, there is that “surplus” cash sitting in the General Fund, and, indeed, the staff report suggests that a portion of the $10 million it recommends be used to pay down unfunded pension liabilities instead could be directed “to increase funding for specific programs.”  Moreover, the City is scheduled to receive $28.95 million in federal stimulus money, some of which could be designated to finance development of a mental-health-response program outside the police department.

We suspect that Mr. Levitt is just being prudent.  Before he budgets any funds for a new initiative, he may want to know exactly what kind of program Council wants to institute.  And he might not have to wait very long to find out.  At the special meeting on May 8, Council is likely to vote to accept the Ashcraft/Vella referral to “immediately . . . create a mental health-oriented response model similar to the CAHOOTS program in Eugene, Oregon and the MACRO program in Oakland, California.”  Once staff finds out which model the politicians prefer, it will be able to include the associated costs in the next budget draft.  The chosen policy will drive the budget, not the other way around.

But be forewarned:  the choice may well be influenced by considerations other than cost.  To date, the politicians (and Mayor Ashcraft in particular) have talked most often about CAHOOTS, the Oregon program in which police department dispatchers route non-emergency mental-health calls to a two‑person team consisting of a medic (a nurse, paramedic, or EMT) and a crisis worker.  The program, which has been operating for 31 years, is staffed and managed by a non-profit organization under a contract that costs the city $2.1 million annually.

By contrast, the Oakland program is a year-long pilot that was only approved last month.  After nine months of study, a group of “stakeholder groups and community members” recommended that the city engage a non-profit organization to run a CAHOOTS-style program in Oakland.  Originally, the city council accepted the recommendation, but then it decided to have the program staffed and managed by – wait for it – the fire department.

The resolution and ordinance directing the shift was co-sponsored by Councilman Dan Kalb, a favorite of organized labor who was endorsed in his 2020 re‑election campaign by a plethora of unions, including the Oakland firefighters and the Teamsters.  Naturally, the move was hailed by Zac Unger, the president of the Oakland firefighters’ union, who called the program a “natural fit” for the fire department.  “We have a level of engagement in the community where we’re readily accepted in all neighborhoods, and by people from all walks of life,” he said. “People know us as helpers.”

The money the Oakland city council had earmarked to pay a non-profit to run the program – $1.85 million – now will go into the fire department’s budget.  According to the city administrator, the fire department soon will begin hiring EMTs to staff the program.  Whether the new personnel will be required to become members of IAFF Local 55 remains to be seen.  Any bets?

Maybe we’re being too cynical in sensing a political calculus behind the Oakland city council’s decision.  Surely, our own Council members wouldn’t be so crassly motivated.  None of them is cultivating labor support in her latest bid for elective office, is she?


FY 2021-22 & 2022-23 budget: 2021-05-11 staff report re FY 21-22 GF budget; 2021-05-11 Ex. 1 to staff report – Budget Summary; 2021-05-11 Ex. 2 to staff report – Operating budget requests; 2021-05-11 Ex. 3 to staff report – CalPERS Summary; 2021-05-11 Ex. 4 to staff report – Workforce Change Requests

Financial forecast: 2021-04-20 Ex. 1 to staff report – UFI Presentation

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Budget, City Hall, Firefighters and tagged , , , , , , , , . Bookmark the permalink.

2 Responses to What’s in the budget

  1. Really says:

    Haha-nailed it. Thanks for the column.

    Crazy “woke” Alameda death match between Mia Bonta and Vella for open seat. AG Bonta not likely to let wife lose and there is no love lost between Bonta and Vella. Look for huge political contributions generated by Bonta machine but don’t discount Oakland and San Leandro challengers.

  2. mmegut says:

    The CAHOOTS Oregon-style program operated by a non-profit organization contracted with the city is undoubtedly the best and most economical way to go, potentially saving the city millions and possibly sparing future tragedies. Thank you for your analysis Mr. Sullwold!

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