Oakland mayor starts to plug $350 million budget deficit

Oakland Mayor Sheng Thao said Wednesday that the city will freeze hiring in certain departments, including her own office and the city’s violence prevention unit, as she starts trying to close a projected budget deficit of nearly $350 million over the next two years.

Thao’s office did not say how much money the hiring freeze is expected to save. It will not affect the police, fire, planning and building, housing or transportation departments, city officials said.

Oakland hopes to avoid future layoffs, city officials said, as the gap between outlays and income for its general purpose fund is forecast to approach $187 million in fiscal year 2023-2024 and nearly $162 million in fiscal year 20242025. The general purpose fund pays for police, fire and other essential services.

“Mayor Thao is committed to wise stewardship of our tax dollars as we work to maintain vital services, encourage economic growth and help vulnerable families,” said Leigh Hanson, Thao’s chief of staff. “As our administration works to begin fixing the challenging fiscal realities we’ve inherited, we know there will be tough choices ahead.”

Hanson added that Wednesday’s announcement will help the city “conserve funding so that we can, to the best of our ability, minimize any adverse impacts.”

The hiring freeze underscores the challenge facing many cities, including Oakland, as they try to bounce back from COVID while federal funds that helped offset budget deficits during the pandemic start to dry up.

As Oakland grapples with rising homelessness and gun violence, the city’s expenditures are rising faster than revenues, city officials said. In addition, healthcare and retirement costs are growing more than before, officials said.

City staff raised concerns about a potential budget deficit last year when early projections showed a deficit of more than $200 million over the next two years. But more recent numbers show an even bigger gap, raising questions on whether Thao will be able to follow through on her campaign promise to implement a hiring blitz when she took office.

Officials within her office said Thao will instead focus hiring on certain departments.

A senior member of the administration said the mayor still plans to fill about 600 vacancies across departments in planning and building, housing, public works and transportation because they rely on revenue streams outside the general purpose fund.

Departments that will be affected by Wednesday’s announcement include the city administrator’s office, the mayor’s office, human resources, finance and the department of violence prevention, which recently lost its chief.

Thao will propose a new twoyear budget on May 1. The City Council can then make amendments and will pass a final plan in June.

On Tuesday, Oakland’s finance team gave some council members an update on the city’s financials for fiscal year 20222023. The projections showed that the city would end fiscal year 2022 with a $120 million budget shortfall.

The city’s deficit comes primarily from a reduction in revenues from its real estate transfer tax and transient occupancy tax, said Brad Johnson, a budget administrator.

The reductions in real estate transfer tax are, in part, the result of fewer homes being sold amid higher interest rates, Johnson said. In addition, tourism hasn’t returned to pre-pandemic levels, resulting in another shortfall in the city’s transient occupancy tax.

Johnson said the city will exhaust the remaining amount of pandemic federal funding — amounting to nearly $180 million — to address gaps in last year’s budget and won’t have those same resources in the future.