Subject: Fiscal Year (FY) 2025-26 Second Quarter (Q2) Revenue and Expenditures (R&E) Report From: Finance Department Recommendation: Receive An Informational Report On Fiscal Year (FY) 2025-26 Second Quarter (Q2) Revenues And Expenditures (R&E) Results And Year-End Estimates For The General Purpose Fund (GPF, 1010), And Select Funds

This informational report details the City of Oakland's preliminary Fiscal Year (FY) 2025-26 Second Quarter (Q2) financial results, projecting a significant $64.84 million operating shortfall in the General Purpose Fund (GPF) by year-end. Revenues are estimated at $784.24 million, which is $59.92 million (7.1%) below the Adjusted Budget, while expenditures are projected to reach $849.07 million, $4.91 million (0.6%) over budget.

Key Revenue Trends:

• Underperforming: Property Tax is down $10.04 million (3.1%), with assessed value growth slowing sharply to 0.8% (from 4.6% in FY 2024-25), largely due to a 2.8% ($346.2 million) decline in commercial property values from Proposition 8 appeals. Sales Tax is projected $3.00 million (3.6%) under budget, with actual Q1 sales declining 4.2% (excluding one-time payments). Utility Consumption Tax is $5.36 million (7.1%) under, reflecting leveled-off utility rates.
• Overperforming: Real Estate Transfer Tax is up $1.73 million (2.5%), indicating market stabilization. Fines & Penalties are up $1.50 million (6.1%) due to expanded parking enforcement, and Transient Occupancy Tax is up $1.49 million (9.7%).

Expenditure Highlights: The GPF's actual vacancy rate is 14.0% (compared to a budgeted 4.0%). While public safety departments (Police and Fire) are projected to be under budget overall due to personnel savings, overtime expenditures remain a concern. Several departments are projected to significantly overspend their adjusted budgets, notably Oakland Public Works Department (131.5% over) and Non Departmental and Port (27.6% over). Conversely, departments like the Police Commission (26.1% under) and Public Ethics Commission (20.7% under) are projected to underspend their budgets.

Fund Balance and Reserves: The estimated ending GPF Fund Balance is $20.67 million. The City's Emergency Reserve of $63.81 million meets the mandated 7.5% policy level, but the report notes this is "inadequate" and recommends 16.7% (two months of operating expenditures) per GFOA best practices. The Vital Services Stabilization Fund (VSSF), intended as a "Rainy Day" fund, has a $0 million balance, having been fully utilized in FY 2023-24.

Other Fiscal Impacts:

• A potential 0.05% salary increase for miscellaneous unions, triggered by excess GPF unrestricted revenues, is not expected to be activated based on current projections showing revenues $9.91 million below the Adopted Budget for eligible categories.
• Several non-GPF funds face significant operating shortfalls, notably the Affordable Housing Trust Fund (projected negative $5.05 million ending balance) and Measure HH (Sugar Sweetened Beverage Tax) Fund (projected $1.03 million ending balance from $6.73 million).

Structural Issues: The report emphasizes "fundamental structural issues" in the City's budget, citing fiscal pressures from CalPERS, healthcare, insurance, and uncertainty in federal funding. It calls for "long-term solutions, including expenditure reforms and efficiency improvements" to ensure future financial stability.