Budget Guide & Background

FY 2021-23 Proposed Policy Budget

This Section Covers:

  • A Budget Overview
  • The City's Budget Process
  • Budget Terms and Concepts

BUDGET OVERVIEW

The budget is the City’s plan for how City revenue will be spent on services that support our community.

A balanced budget ensures our "revenues" (the amount of money the City brings in) are equal to or greater than our "expenditures" (the amount of money the City spends). While other cities and government agencies have different cycles, Oakland approves a budget every two fiscal years. The budget currently under consideration runs from July 1, 2021 through June 30, 2023. The State of California, and most cities, counties, and school districts use this same timeframe for their fiscal year.


What is the City's budget process?


From February to June, every other year, City staff, the Mayor and City Council work together to create a balanced budget by June 30, as required by law.


While the City’s budget is adopted for a two year period, it is divided into two one-year spending plans. During the second year of the two-year budget cycle, the Mayor and City Council conduct a midcycle budget review to address variances in estimated revenues and expenditures and other changes to the City’s financial condition.


How is the City's budget funded?


The City of Oakland's budget is funded through local taxes, service fees, grants, voter-approved bonds, and other sources. When you pay taxes, such as sales or property tax, a percentage comes to the City to fund local programs and services. For example, for every dollar that you pay in property tax, the City of Oakland receives a little less than 26 cents. The rest goes to other local government agencies like Alameda County, AC Transit, and Oakland Unified School District.


Many Government Agencies provide support for the Oakland community.


Together, we provide essential services and support to our community-- from maintaining roads, sewers, and parks to providing education, transit, and clean water.


Many of the services that Oaklanders care about such as public & mental health, water, education, transportation, and homeless services are not in the City's budget.


The City of Oakland's total average annual budget is approximately $1.7B.


General purpose funds are generally supported by tax revenue and make up 38% of the City’s budget. They are the most flexible with regards to what they can be spent on. The other 62% of the City’s budget comes through grants and voter approved bonds and legally must be used for specific purposes; these are called restricted funds. For instance, the City’s Measure KK funds may be used only for street and infrastructure improvements and affordable housing whereas the City’s business tax revenues can be used for all governmental purposes. Expenditures can be divided by type (e.g., salaries, retirement contributions, debt service, supplies, capital projects, etc.), or by the department that spends them (e.g., Police, Fire, Library, Public Works, etc.).


To ensure that restricted revenues are used only for their intended purpose, the City accounts for its financial resources in different “funds.” For instance, federal grants from the U.S. Department of Transportation for road construction are held in a different fund than revenues from the City’s Public Safety & Services Measure.


In addition to the Proposed Policy Budget, the City also issues a Proposed Capital Improvement Program (CIP) for City Council consideration. The Policy Budget is the City’s operating budget and includes the projected revenues and expenditures required to provide most City services. For instance, the operating budget includes revenues from general taxes which provides funding for police services, fire and emergency medical services, youth and recreation programs, library services, city administration, and other City needs.


The CIP, by contrast, presents planned expenditures for projects which will improve the City’s infrastructure, buildings, and environment as well as major purchases such as land, buildings, and equipment. For example, the CIP includes water quality projects around Lake Merritt, complete repaving of streets and roads, construction of sewer infrastructure and construction or renovation of City buildings.

THE BUDGET PROCESS

The budget process is the procedure through which the City formally develops, deliberates, and adopts its budget.

The budget process consists of several important stages:

  1. Budget Development,
  2. Budget Adoption, and
  3. Budget Amendment.

The City’s Consolidated Fiscal Policy, Ordinance 13487 C.M.S., provides the legal framework that guides the budget process and mandates that the City pass and adopt a balanced budget.



Budget Development

November-December: Baseline Budget Development

In the fall, the Finance Department develops a “baseline budget” which is a preliminary two-year budget that forecast revenues and expenditures based on the City's current level of staffing, program funding and policies. The baseline budget is the foundation upon which the proposed budget is developed. The Finance Department worked in conjunction with all City departments to create the baseline budget considering the latest economic projections and information on likely expenditure increases such as fringe benefit rates for retirement and health care. This forecast of expected revenue and expenditures in the baseline budget helps the City identify whether there will be an operating surplus or the need to address a funding shortfall.


March: Five-Year Financial Forecast Report

January-March: Internal Analysis

February-March: Community & Council Input

In accordance with the City’s Consolidated Fiscal Policy, the Administration assesses stakeholder needs, concerns, and priorities prior to finalizing the Proposed Budget. This takes the form of a budget priorities poll administered to a statistically representative group of City residents developed in conjunction with the City’s Budget Advisory Commission. The Councilmembers are also invited to provide a list of key expenditure priorities for the Mayor’s consideration for the Proposed Policy Budget.


March-April: Proposed Budget Finalized

The City Administrator provides a preliminary budget proposal to the Mayor. The Mayor weighes options, conductes additional analysis, considers City Council, community, and other stakeholder input, and issues a final Proposed Policy Budget by May 1.



Budget Adoption

May-June: Community Input

The Administration and City Council conducts Community Budget Forums at varied times and in different neighborhoods across the City to inform residents of the Proposed Policy Budget. These meetings also provide a forum for City Councilmembers to obtain input from constituents on the FY 2021-23 budget priorities and to understand questions and concerns pertaining to the Mayor’s Proposed Policy Budget.


May-June: Council Deliberations

Upon presentation of the Proposed Policy Budget, the Mayor and City Council conduct a series of public hearings to review the proposed budget in detail. The City Council receives additional information and responses to questions raised regarding the proposed budget and at this point in the process, Councilmembers can submit amendments to the Mayor’s Proposed Policy Budget for discussion and consideration.


June: Council Budget Adoption

As required by the City Charter, the City Council must adopt a balanced budget by June 30, prior to the start of the fiscal year on July 1. The adopted budget provides a two-year appropriation authority for all funds, and first and second-year appropriations for the Capital Improvement Program (CIP). The CIP appropriations are outlined in two annual spending plans for FY 2021-23.



Budget Amendment

The City Council also has the authority to amend the budget throughout the two-year period. Any appropriation of new money or changes to the allocation of appropriations between funds or departments requires approval by the City Council. Transfers between divisions within a department, between spending accounts, or between projects may be made at the administrative level. These transfers may be authorized by the City Administrator, Finance Department, or department directors depending on the nature of the transfer.

BUDGET TERMS & CONCEPTS

Budgets & Fiscal Years

Budgets are plans for how organizations intend to use projected resources (revenues) for payment to perform operations or provide services (expenditures) over a defined time period. Budgets are prospective planning tools and must be balanced between revenues and expenditures within the defined time period. The key time period for the City of Oakland’s budget (and other financial reports) is the fiscal year (FY). The City’s fiscal year begins on July 1st and ends on June 30th of the following year. Fiscal years are generally expressed as follows: FY 2021-2022 begins July 1, 2021 and ends June 30, 2022. Fiscal Years may also be divided into quarters or monthly periods for reporting purposes. It is important to note that some grants awarded to the City may or may not synchronize with the City’s fiscal year. These grants often follow a schedule based on the granting agency’s fiscal period or other predetermined period as determined by the grant agreement.


The Oakland City Council adopts a biennial (two-year) balanced budget by June 30th of every odd-numbered year. For instance, the City Council will adopt the FY 2021-23 Biennial Budget by June 30, 2021.


Revenues

Revenues can be generally understood as the sources of income for the City and are divided into several categories or fund types. Tax revenues are largely unrestricted and are allocated to the General Purpose Fund. Grant revenues are restricted by the grant agreement and often require matching contributions from other sources. Special revenues include voter-approved measures and are restricted for a specific purpose. Revenue from fines and penalties are largely unrestricted and result from enforcement activities. Based on best practices and Council policy, one-time revenues (e.g., land sales) should not be used to support ongoing expenditures. Fee and Service Charge revenues support many City functions. The rate charged for fees and service charges is regulated by state law. Generally, fees may not exceed the cost of providing a service with a few exceptions. Fees are listed in the City’s Master Fee Schedule, which is approved annually through a City Ordinance, but can be modified at any time with City Council’s approval. The current Master Fee Schedule can be found on the City of Oakland website.


Revenues are budgeted and recorded into specific accounts. These accounts are aggregated for reporting into categories, such as property tax, fines & penalties, or service charges.



Expenditures

Expenditures reflect the costs associated with the provision of services and performance of operations by the City. There are two key categories of expenditures: personnel expenditures and operations & maintenance (O&M) expenditures. Personnel expenditures include the cost of paying City employees to perform various functions and provide services to the public. These costs include salaries, overtime, retirement, and healthcare costs. O&M expenditures include non-labor related costs and are processed through the City’s contracting and purchasing systems. O&M expenditures include items such as contracts for services, supplies and materials, utilities, equipment purchases, and debt payments. Expenditures are budgeted and recorded into many different accounts. These accounts are aggregated for reporting purposes into broader categories that include salaries, retirement, debt payments, or capital expenditures, among others.



Funds and Fund Transfers

Funds are groups of revenue and expenditure accounts that must be balanced individually and separately. They function in the City's Budget like having separate bank accounts to track different personal finances. The City’s Budget contains over 100 funds, the largest of which is the General Purpose Fund. The General Purpose Fund is unrestricted in its use. Other Funds normally have restrictions on the types of activities they support. These restrictions may be established by local ordinance, the City Charter, federal or state law, or grant agreements. The Policy Budget will often summarize information by General Purpose Fund and All Funds. All Funds sums up the General Purpose Fund and all other special funds.


In certain cases, monies may be transferred between City funds. For instance, 3% of the City’s annual unrestricted General Purpose Fund revenues are required to be transferred between the General Purpose Fund and the Kids First! Fund to meet the requirements of the 2009 Kids First! ballot measure (Measure D). When a transfer occurs between funds, the “sending” fund (where the transfer comes from) records an expenditure and the “receiving” fund (where the transfer goes to) records revenue. This is to ensure that the overall budget remains balanced.



Department & Organizational Structures

The City of Oakland is organized into various departments as defined in Section 2.29 of the Oakland Municipal Code. These departments are responsible for delivering the various external and internal services of the City. Departments are generally established by City Ordinance approved by the City Council. Several departments were established by the City Charter itself and generally include the name “Office” in the title. These include the Mayor’s Office, the City Attorney’s Office, and the City Administrator’s Office. Because departments are not funds, departmental revenue and expenditures may be contained in and/or attributed to one or more funds. Similarly, one fund may contain one or more departments' revenue and expenditures.


Both the budget and financial forecast documents include two quasi-departments: The Capital Improvement Program and Non-Departmental. These two groups are distinguished from traditional departments in that they do not have operational staff attributed to them. These groups are used to record various inter-departmental projects and citywide costs, such as debt service, legally required fund transfers, or major infrastructure projects.



Internal Service Funds

The City uses Internal Service Funds to charge departments for services that are provided between City departments and are considered a part of the centralized support the departments need in order to complete their work. For example, the Oakland Police Department (OPD) requires vehicles to operate. These vehicles also need routine maintenance. OPD pays the Oakland Public Works (OPW) department to maintain its vehicles. Other departments do this too. Other Internal Service Funds include facilities, telephones, printing, etc. The City has each Internal Service Fund apportions costs across departments and funds at a rate that is determined to be the cost of providing this service.



Overhead Rates

Overhead rates are used to recover costs of certain administrative functions like accounting, cash management, and information technology, which can be difficult to allocate to specific funds, functions, or projects. The City utilizes an outside actuarial consultant to review rates and methodologies for its overhead rates. Overhead charges are budgeted and recorded as expenditures in any given fund, while overhead recoveries are budgeted and recorded as revenue in the overhead fund supporting the relevant administrative function.


For example, the Oakland Public Works (OPW) Department has a centralized fiscal and human resources staff. Costs for HR staff are budgeted and recorded as expenditures in the funds receiving support from OPW fiscal and human resources, based on the payroll (i.e., charged personnel) within those funds and a calculated overhead rate. Overhead recoveries are then budgeted and recorded as revenues in the OPW overhead fund to offset the costs of OPW fiscal and human resources staff.



Fund Balances & Reserves

At the end of each fiscal year, each fund’s revenue collections are compared against incurred expenditures. If there were greater expenditures than revenues, then that difference is reduced from the “fund balance.” A negative fund balance occurs when cumulative fund expenditures exceed cumulative fund revenues. By contrast a positive fund balance exists when cumulative revenues exceed cumulative fund expenditures. When revenues are more than expenditures, a surplus occurs, which is added to that fund’s fund balance.


If a positive fund balance is restricted or earmarked in its usage, it is often termed as ‘reserved.’ For instance, the General Purpose Fund has a 7.5 percent Emergency Reserve for unanticipated and insurmountable events. Therefore, the City Council may be required to direct funds from the positive fund balance to support the Emergency Reserve. Other funds may have a positive fund balance that must be reserved to support the purpose of that individual fund. This may include future anticipated expenditure needs such as equipment replacements, or future costs associated with a multi-year project.



Budget Balancing

The term ‘balanced’ refers to when all projected revenues are equal to all projected expenditures in a budget or forecast. If projected revenues exceed projected expenditures, then the budget or forecast is said to have a projected surplus. If projected expenditures exceed projected revenues, then there is a projected shortfall. By policy, the City Council must adopt a balanced budget.


A structural imbalance occurs when there is a difference between ongoing revenues and expenditures where they do not match and balance. . A budget that uses one-time revenues to pay for ongoing expenditures may be balanced over the fiscal period but suffers from a structural imbalance: in this case a structural shortfall. By contrast if ongoing revenues exceed ongoing expenditures, a budget may have a structural surplus.



Assets & Liabilities

Assets are tangible and intangible items that hold value and include City cash, investments, buildings, land, and equipment. Assets can be divided into two types: current and long-term/fixed assets. Current assets include cash, receivables, and short-term investments. Long-term and fixed assets include things such as long-term investments, property, plant, and equipment that have value, but cannot be quickly converted into cash.


Liabilities are monetary amounts that the City is obligated to pay based upon prior events, transactions, or other financial commitments. . For example, if the City owes money resulting from borrowing or issuing debt (e.g., bonds), those would be considered liabilities. Liabilities can also be divided into two types: current liabilities and long-term liabilities. Current liabilities are those that the City expects to pay within a one-year period. This includes wages paid to active employees for hours worked, or bills for utilities. Long-term liabilities are obligations that the City will pay out over time, such as pensions, retiree medical obligations, and long-term debt service.


Unfunded Actuarial Accrued Liability (UAAL), or Unfunded Liability, is often mentioned in conjunction with government finances. UAAL is defined by the State Actuarial Standards Board as “the excess of the actuarial accrued liability over the actuarial value of assets”. Simply put, it is the amount that an entity is projected to owe that is not covered by projected future payments under a specific payment methodology, or by assets currently held by the entity. Unfunded Liabilities typically refer to the City’s future pension and retiree healthcare costs for which the City does not have sufficient funds to cover.



Financial Reports & Actuals

“Actuals” are recorded revenues and expenditures that have occurred over a defined period. While budgetary values are projected prior to the close of a fiscal period, actuals are recorded after the fact. A financial report is a statement of actuals and accruals. Actuals can be divided into two categories: unaudited and audited. Unaudited actuals include those items reported in the City’s Quarterly Revenue & Expenditure Reports. This financial data is distinguished from audited actuals in that they have not been evaluated by an independent financial auditor. The City has an independent financial audit conducted following the close of each fiscal year to provide an independent opinion as to whether the City’s financial statements are stated in accordance with General Accepted Accounting Principles (GAAP). The audited actuals are presented in the Comprehensive Annual Financial Report.