Where does all our money go?

June 30, 2008 by V Smoothe · 24 Comments

PaulineZ brings up a good question in the comments:

Per the Chronicle 6/28, Edgerly will collect a pension of more than $150,000 a year. How can that be in a city as “poor” as Oakland

Okay, sometimes I wonder if people really don’t get why Oakland doesn’t have any money. I’m not saying that to be snotty or judgmental, it’s just that the problem is so self-evident to me. But I shouldn’t assume that it is for everyone, since it isn’t like this gets spelled out clear as day in the newspaper. Anyway, for those who don’t know, I’m going to tell you.

The reason that service in this city gets cut even as revenues rise is because of the costs of city employees. That includes general compensation, benefits, and pensions. City employees get annual cost of living increases, negotiated into our agreements with the union. The cost of providing medical coverage has risen astronomically over recent years. The private sector, in many cases, has dealt with this by significantly increasing employee contributions and cutting coverage. We have not. Our existing pensions obligations are staggering.

Roughly 75% of the General Purpose Fund costs go to personnel. We’re talking about pre-negotiated salary increases of as much as 4-5% annually, increased retirement plan premiums due to increased pension benefits, and medical costs rising 16-18% annually.

And that’s why we have no money. Some people would say that such a situation is unfair to the taxpayers - City employees, in most positions anyway, are generally paid better than they would be for the equivalent job or for their skill set in the private sector. (The reverse is true for many of the highest paid positions.) Their compensation in terms of benefits and retirement is certainly significantly higher than could be expected in the private sector, and the costs of providing it rises far faster than inflation or revenue even in boom times. And the people of Oakland suffer for this in the form of reduced service delivery for their money. Others would argue that the City should lead by example, and that poor compensation in the private sector does not make it okay to compensate civil servants equally poorly, and that we have a moral obligation to provide our workforce with nothing less than what is required to live and raise a family here, whether that’s a market wage or not. Both arguments have merit. I’m not taking a position on either side here, just pointing out that people want to know where the money goes, and that’s where it goes.