From The San Francisco Chronicle Budget woes have Oakland mulling bankruptcy
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.
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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.
For context, read Judge Rules Vallejo Can Void Union Contracts
Regarding Oakland, Mish adds:
Oakland should do itself a favor and beat the rush by declaring bankruptcy now unless the unions come forth and voluntarily agree to lower benefits and stop all defined benefit plans going forward.
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By the way, expect to see a surge of cities considering bankruptcy. In addition expect to see municipalities in Florida and Alabama to do the same. The interesting thing to watch will be how far and how fast this spreads.
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