Thursday, June 13, 2013

Now is NOT the time to abandon good budget policy

The City of Oakland has unfunded pension liabilities (approximately $1.5 billion) and negative fund balances (approximately $100 million).  Health care costs and other required payments to the State of California are forecasted to go higher in the coming years. 

And while the current two year budget cycle appears susceptible to balance, it should be noted that in the three years that follow (FY 2015-18) every annual budget shows a NINE FIGURE DEFICIT, ranging from a low of $111 million to a high of $200 million.  

Just four years ago this Council recognized the folly of spending windfall revenues to fund on-going obligations.  With that in mind the Council passed a rule about the Real Estate Transfer Tax.  Any revenue above $40 million in one year was to go to a reserve or to pay down negative fund balances or paying for capital improvements.  In adopting the rule the Council recognized that responsible fiscal planning required using one-time funds to pay down debt and not create new continuing obligations.

It would be a mistake to abandon this policy the first time it would actually take effect. And yet the City Council is considering that very move today.

To abandon the rule demonstrates a lack of fiscal discipline.  A rule was set to show responsibility - it is a good rule and to abandon it the first time it would apply shows the same old spend whatever we have even when we are in debt. 

Further it leads to the likelihood of repeating past mistakes.  The City got in a tough spot in past years when it took a spike in certain income (particularly real estate transfer taxes) and spent it as ongoing income.  It was wise to set a rule saying any income above some amount will be used to put our long term finances in order NOT to leverage us up further.

The Oakland Metropolitan Chamber of Commerce urges the City Council to maintain the real estate transfer tax policy it adopted just four years ago,  thereby demonstrating a your commitment to responsible budgeting and to serving all the citizens of Oakland.

 

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