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Dellums admits budget errors, prepares to make more

This afternoon, our unpopular Mayor Ron Dellums held a press conference is an overcrowded city hearing room usually reserved for small committee meetings. Flanked by t-shirt-wearing city employee union activists, the police and fire chiefs, and interim City Administrator Dan Lindheim, Dellums announced that the budget “that was presented” (by him) and ratified by the City Council is fundamentally flawed and that a deficit “in the tens of millions of dollars” is likely. He gave no indications of how he’ll close the budget gap, but the presence of the city employees’ unions and a brief aside about the futility of growing the city without new infrastructure funded by the federal government reveal that he doesn’t know how to balance the city budget.

The main problem with Oakland’s budget is the large number of public employees and the poor quality of their work.* When discussing Kids First yesterday, Councilmember Pat Kernighan said that nonprofits provide more service for fewer dollars than the city. That is undoubtedly true. Perhaps a more research-oriented blogger may look at how many employees we have per-capita, but since 75% of the city’s budget is spent on salaries, and city services are widely acknowledged to be poor (as a recent poll confirms), major changes in the union contract will be the only way to solve a fiscal crisis in this town.

Except, of course, a revenue increase. While a retail revitalization plan may be long-term and even require city investment up-front, there are much shorter-term ways to raise revenue. One is to allow more real estate development. With more than 55% of city’s budget coming from real estate, and city finances structurally dependent on property taxes, real estate development is the only way to increase city revenues. Condo maps literally create new property, and other kinds of development transform underutilized properties into “higher and better uses” that generate sharply higher tax revenues. Businesses, on the other hand, are mostly helpful to tax receipts because of the property demands they create: less than 2% of city revenues come from business taxes.

So when Dellums cast aspersions on ABAG’s demand that Oakland increase its population by noting the poor-quality infrastructure (that developers pay to upgrade), he was dismissing the most immediate way that Oakland can substantially raise revenues. He killed an enormous project in West Oakland that would have produced tens of millions in immediate tax benefits, and his Planning Commission and CEDA appointments have given developers the impression that they are no longer welcome. The mayor is thus far doing everything he can to prevent Oakland from increasing its tax base.

Dellums’ press conference, to announce a review of the flawed budget he submitted two weeks late, was a stark reminder that just as he failed to properly oversee the mid-cycle budget, he is unable to grasp the causes of or solutions to Oakland’s budget problems. The phalanx of city employee union leaders standing behind him, the same people who recruited him into the race and bitterly opposed Ignacio de la Fuente’s reelection, are the barriers to solving the city’s problems. Until our city leaders start expecting efficient delivery of services from the city employees, and stop acting as if city jobs are there to help ease our unemployment problem, Oakland’s budget deficit will never close.

* I don’t mean that individual city employees are bad workers. But the overall level of service delivery is poor compared to the budget and size of the workforce. Much of this reflects poor policy choices by the City Council. Reducing the size or cost of the city bureaucracy until revenues increase is the only way to significantly reduce expenditures.

Posted in budget, california, citycouncil, delafuente, dellums, kernighan, oakland.

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14 Responses

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  1. oakie says

    “I don’t mean that individual city employees are bad workers.”

    Come, on. SOME employees are good, SOME ARE poor workers. Isn’t it the job of all managers to be ABLE to evaluate the performance of their minions? Why not have the managers evaluate all 5,400 employees. Why not FIRE the lowest 10%? That’ll save a few nickels!

    Isn’t the purpose of employing these people to serve the residents of the city (and NOT merely to provide jobs to them)? Why not hold them to some standard? What a concept!

  2. SSS says

    The problem at hand isn’t “the large number of public employees and the poor quality of their work,” it’s the insane budget policies the city has been following the past couple of years. The city got a huge windfall from transfer taxes and other property-related revenues during the boom years, but instead of putting it away for a rainy day, they directed it to programs with ongoing costs. It’s an axiom of budgeting that you don’t fund ongoing costs with one-time money, but Oakland just blew it on this account. The eventual decline in property-related revenues was easily foreseen, but the city, under Edgerly’s leadership, failed to prepare for it. They didn’t control expenditures and now we’ll all pay the price.

    I appreciate your close attention to Oakland politics, and your knowledgeable comments on zoning, but your analysis of Oakland’s budget problems (blame the public employees) borders on demagoguery.

  3. Donald says

    Excellent post. I agree that we have many good employees and generally speaking we are not particularly suffering because of bad employees. But it is obvious that the payroll is way to thick in the upper tiers and the overtime situation is completely out of control. Wait till the pension liability really kicks in—today’s troubles will seem minor.

    I also agree that putting the brakes on housing development is at odds with the need for revenue. To me it seems to be an ideological decision that is mucking up the economics of the city budget. That is, the negative turn on development in my view is not much more than a fear of the demographic shifts which would occur if there were more development and more prosperous residents living in Oakland. Leftist economics.

    One might argue that the economic climate doesn’t favor the construction of housing, and one would have a point. But housing projects take years to develop and putting out the “Go Away” sign now will only prolong the stagnation for years to come.

  4. Max Allstadt says

    Was Peter Sullivan’s project the 30 story luxury condo project? Or something different?

    I remember a huge luxury condo project which was to be flanked on the ground floor by commercial space – that project was WILDLY out of context, and inappropriate in a number of ways. Still, shutting down residential development on the Mandela corridor is idiotic.

    V Smoothe says 1.33% of Oakland’s population is employed by the city. That’s a lot of momentum and lobbying power to crack. Scary.

    Agreement is offered regarding the fact that mistakes were made in deciding to use the passive voice in that press conference!

  5. dto510 says

    Max, I am referring to the Mandela Grand project. Whether you liked the project or not, it was refused a public hearing and the normal planning process. Mr. Sullivan did an excellent job building community support, and the sheer amount of jobs and tax receipts represent an easy way to plug Oakland’s budget holes.

    SSS- I disagree that the city has been following “insane budget policies.” Transfer tax growth is a not one-time windfall, but should continue to increase as more parcels are subdivided into condos. If developers were confident of the future of Oakland, the city could reap present-day tax receipts from continued investment on a several-year timetable. And different parts of the real estate market move on different cycles, so if Dellums had anything to show for all his rhetoric about new industrial opportunities, there would be yet another source of transfer tax growth. Fundamentally, with 75% of Oakland’s budget going to staff salaries, and a citywide recognition of poor service quality, there is nobody else to blame but the bloated bureaucracy. Whether this is mostly the fault of bloated benefits and European-style job protections, or the City Council’s poor prioritization and organization of staff resources, is another debate.

  6. Max Allstadt says

    Denying the project the normal planning process isn’t cool, but that project wasn’t going to make it through it anyway. It was 30 stories tall with nothing over 10 stories in a mile radius. It was ultra lux housing in glittery towers not two blocks from housing projects. I met Peter Sullivan at a party you might remember DTO, and frankly he seemed like a really nice, smart man. Kinda looks like Howard Dean, but better, no crazy eye. The project, however, was a pretty big stretch politically.

  7. V Smoothe says

    Max -

    The Mandela Grand project was intended to be market-rate housing, not “ultra lux,” whatever that’s supposed to mean. It would have created over 300,000 square feet of custom, modern light industrial space and a total of 1577 units, and would have been completed in four phases, the last one estimating completion in 2022.

  8. Max Allstadt says

    We’re talking about a 30 story tall building with floor to ceiling windows providing unobstructed views of the entire bay area from Sunnyvale to Marin on a clear day.

    I’d guess “market rate” for something like that would be somewhere in the region of “ultra lux”.

    You guys know me well enough to know that I’m not anti-development. I just think this was the wrong place for this project. I know you guys well enough to know that you omit any details of the height of the project in your articles, because those details are positively damning. The closest thing to it that even exceeds 5 stories is the Lone Star cement factory on Peralta at 25th.

    I am all for developing residential properties along Mandela, and along Grand. This design was just too huge and too disconnected from the reality of the neighborhood around it.

    I lived at 24th and Peralta for over a year. I know the area very very well. The project was totally out of context. It’s neighbor across Mandela is the one-story double height Peralta Studios live/work. Across grand is a 40 foot tall windowless office storage building. The kitty corner is a great place to get a deal on truck tires.

    There is residential in the area, but it’s all Victorians or Projects. Nothing over a few stories.

    The only way for a project like that to make any sense at all would be if we undid “industrial preservation” altogether, and rezoned all the industrial properties around there to create a second downtown, fueled by a developer feeding frenzy. I might actually get behind that if it was well thought out. Otherwise it’s just nuts.

  9. Dung says

    On the budget, please read closely section 305 a) of the City Charter – the Mayor is “responsible” for presenting a budget that is created by the City Administrator under the direction of the Mayor and the Council. Given the context of the current situation, one can only imagine the type of information provided and where the direction came from.

    On the industrial policy, the criticism that there is nothing to show for it seems a bit early given the number of housing units from the 10k plan still being built and leased as well as the current state of the economy. Many industrial businesses cannot exist in live/work style developments because of noise, smell, heat, and other impacts. Once the area has housing, eminent domain is the only (nearly impossible) way to get the land converted back to industrial use.

    On the number of employees, while there is always a range of effectiveness, management and Council direction are really the biggest challenge. Too many council members have been around for too long and should be the focus. As the charter currently is written, the only real power the Mayor has is his appointments to boards. His appointments are certainly open for discussion and debate but until the position is actually provided more authority than the bully pulpit it currently has, no mayor will be able to move Oakland forward.

  10. dto510 says

    Max – it’s not about whether the Mandela Grand project should have been approved, it’s that Mayor Dellums refused to even let it have a public hearing. Turning away millions of dollars in private investment is bad for the budget, period. Carlos Plazola over on A Better Oakland has another example of the Dellums administration turning away investment without public input.

    Dung – it’s easy to blame the budget on Deborah Edgerly, but the mayor is the first person responsible for betting the budget, then the Council’s Finance Committee chaired by Jean Quan, and then the full Council. Each step of the process is more rushed. Ultimately, the mayor is, as the charter says, responsible.

    There is a great deal of industrial land and the city has been attempting to lure industrial users for years, with absolutely nothing to show for it, not even the most basic of a redevelopment plan. The economics are unsound because of the high cost of new industrial construction. And whether or not “industrial preservation” is successful, it’s not the best use for the budget because of local government’s reliance on property, not business, taxes.

    As I and Mr. Plazola have said, the mayor has a great deal of power to kill development, including through his Planning Commission appointments. He’s been using it. That’s bad for the budget. The mayor’s allies can try to blame the Council for being “around for too long” but that’s unproductive, because they’re there anyway (despite attempts from both public employee unions and reform-minded advocates to unseat them). If the mayor is going to hold a press conference on the budget, he needs to show some leadership on the budget’s fundamentals.

  11. Max Allstadt says

    Through what process, exactly, did he Dellums kill the Mandela Grand project? Was it simply a matter of planning commissioners voting it down, or was there more to it?

    I read Carlos’ post on ABO. I was really glad to see more detail on that entire affair. I haven’t seen the proposal for that project, but I’d love to. If they hired somebody responsible for Vancouver’s waterfront, it could be exceptional.

  12. dto510 says

    I also though Mr. Plazola’s proposal for an Estuary Specific Plan guided by a Vancouver planning firm was exciting. I think there’s a fair argument for having it be city-directed rather than developer-directed, but the whatever his team came up with would have had to be approved by the Planning Commission and Council.

    If you follow the link, you’ll see that Dellums exercised his executive authority to reject a favorable staff report on Sullivan’s proposal, thereby preventing it from receiving a decision from the Planning Commission. Property owners have a right to request planning permission, and the PC and Council can vote yes or no. Dellums’ intervention was egregious and certainly bad for the budget. He said that he pulled the report to give his then-staff the “chance to come up with its own development recommendations for the industrial neighborhood straddling Mandela Parkway south of West Grand Avenue, (and) the city’s other shrinking industrial zones.” The abstract “industrial preservation” policy was passed, but there is still no plan to attract industry.

Continuing the Discussion

  1. Oakland employment per capita, 1995 and 2005 | A Better Oakland linked to this post on July 24, 2008

    [...] you haven’t done so yet, I highly recommend reading dto510’s take on Dellums’s “mistake were made” press conference [...]

  2. Statistical surprise: Civil servants overpaid « FutureOakland linked to this post on August 13, 2008

    [...] put both the number and pay of Oakland’s bureaucracy into perspective, V Smoothe shared a chart from the Census Bureau (PDF) listing the number, per-capita number, and [...]