Budget News Near And Far

Bringing National News To The Local Level

Those who keep an eye on national-level news have likely heard that the Federal Government is facing another potential shutdown next week—September 30th, to be exact. The Democratic minority appears to be taking a stand on healthcare subsidies, Medicare funding, and other already-allocated funds that the White House has attempted to claw back in recent months.

Depending on what news outlet you read, you’ll get a lot of different takes on the situation. According to The Hill, some strategists believe that Senate Democrats have been fighting the whole time and that Chuck Schumer is in a good position to get concessions. Fox News highlighted that Republicans think the shutdown will be blamed on the Democrats and that Trump is unlikely to budge. And on KPFA, guest John Nichols from The Nation argued that Democrats haven’t been able to hold together a coherent platform to unify their Party and make effective use of what leverage they have, but that if they did it could really come together.

But with Trump rejecting a meeting with top Democrats this morning, the likelihood of another government shutdown increases by the day. If the Democrats don’t manage to force concessions, trillions of dollars in funding for Medicare—which many safety-net hospitals like St. Rose rely on—will disappear. There’s also a chance that a Democratic L will embolden Republicans to make even more cuts in the coming years—cuts which are already starting to impact our local governments.

As we’ve covered extensively this year, funding for both the City of Hayward and Hayward Unified School District (HUSD) are cratering. Much of this is directly tied to the State budget, but the State budget is tied in many ways to what’s going on Federally. According to the California Budget Center, the May revise failed to propose any tax policy changes to increase revenue, despite more than $4,000,000,000,000 (that’s trillion, by the way) in tax cuts to wealthy households and corporations.

The California State Budget relies heavily on stock market income from the wealthiest Californians. Beyond that, evidence shows that federal funding from the pandemic also played a large role in a boom year for the California budget. That would also mean the reverse when federal funding starts drying up. On top of that, tariffs and inflation seem to be pushing stagnation in the job markets which will only further hurt state funding that relies heavily on income tax—not to mention big tech layoffs and an increasing cost of living crisis displacing residents.

All of this pressure on the State budget trickles down to us here in Hayward where HUSD is still fighting off receivership after cutting $50,000,000 and the City is staring down a $20,000,000 deficit that has effectively wiped out the entirety of their reserves. It may take a while for some of these national-level issues to trickle down to the local level—the cuts to Medicaid may not impact local safety net hospitals until 2026 or 2027—but we will get wet eventually.

What Council Wants From The Budget

The City Council is going to get an update on the FY 26 budget sometime in October, according to a Staff Report to the Council Budget and Finance Committee. Before then, there are likely going to be regular reports to Council and the Budget and Finance Committee about the state of the budget.

It’s been difficult for Finance Staff to keep up, however due to big changes in their department in recent months. After the Finance Director left at the end of January, a new Interim Finance Director, Sharif Etman, was appointed by now-former City Manager Ana Alvarez. He has since been removed, leaving new Assistant City Manager Mary Thomas to lead the Finance Department.

“I know your department has gone through some big transitions over the lats 30 days,” Mayor Salinas said, “things have been rather tumultuous.” According to comments from Staff and City Councilmembers, one of the major factors driving the deficit has been the substantial salary increases that were approved during negotiations last year—many of them were 10% or more.

This has pushed labor negotiations to a standing Closed Session item. With salaries making up almost 80% of the General Fund expenses, there is no way to balance the budget without involving some kind of negotiations with labor groups. However, not all labor groups are equally responsible. One of the more prominent issues has been excessive use of Overtime—primarily in the Police and Fire Departments.

These two departments, combined, make up around 70% of the City’s salary expenses. And if Firefighters and Police Officers are regularly using Overtime—which usually equates to time-and-a-half—that can quickly deplete their budgets. During the meeting, Councilmember Syrop asked Staff to bring models that help explain the impact of “any adjustments we make, how’s that going to impact the mid-term picture?”

Compensation Cascades

The implication in this discussion being that the City Council approved the raises without a full understanding of how it would impact the budget. And it’s further complicated by an item coming before the City Council tonight, which is an increase to the Police Captain’s salaries. The recent Hayward Police Officers’ Association (HPOA) and the Hayward Police Management Unit (HPMU) contracts have language that require automatic “equity increases.”

The rationale behind this, as we’ve covered before, is to keep Hayward salaries competitive across the region. According to the Staff Report, “Pursuant to the negotiated terms of the MOU between the City of Hayward and between HPMU, an 11.82% equity increase will be applied to the Police Captain (P300) classification effective June 30, 2025.” If that weren’t enough, this phenomenon also triggers cascading raises throughout the organization.

This is called “compaction” and in this case, forces the Police Chief to receive a raise, as well. According to the Staff Report, “The salary for Police Chief is set by contract to be fifteen (15%) above Police Captain.” And because the Captains just got a raise, the Police Chief also gets a raise—though only 1.68%. This language is also baked into the HPMU, which requires Police Captains are paid 15% more than Police Lieutenants (6.01). So a raise for Officers can lead to raises all the way up—not to mention pay at other local cities.

“It’s hard to see down the road that far,” Councilmember Syrop said.

This led Mayor Salinas to ask Staff for information on what possibilities there are for checks and balances around salaries and raises. There’s potential to develop a “compensation philosophy”, but Staff stressed that it wouldn’t be something that would provide immediate help—they would go into effect during the next contract negotiations.

Transparency Without Panic

The Mayor, while pushing for a more consistent and clear discussion about the City’s finances with the full City Council, also worried about how the public would react. “I want to be careful about what we project to the community,” he said. He pressed for regular reports, but Staff stressed that, due to how the City’s cash flows, more regular reports will need a lot of context.

For example, Staff said that if a regular report on the state of the Reserve Balance is released, it may show things like a temporary negative balance. However, this would be normal and a factor of—much like HUSD—property taxes only coming in twice a year. However, Finance Staff did not seem to have the same concern about cash flow that HUSD has had to wrestle with.

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Councilmember Syrop pressed for transparency, as well, while also being careful about public perception. “I think we want to be honest with the community with the position that we’re in,” he said. “I’m for being as honest as possible without inspiring panic.”

How To Get Money

Something that we may see a lot more of in the future is the City leaning on debt to finance things. According to a Staff Report, the City only has around $200,000,000 in outstanding debt at the moment—over half of which is for the Wastewater Revenue Bond to pay for the new Water Resource Recovery Facility (WRRF). As a Charter City, there is apparently no limit to the amount of debt that the City can take on— “as long as you can pay,” Staff joked.

Thankfully, the City Council hasn’t talked much about taking out debt for anything other than big projects—the WRRF, for example. Measure C/K1 was a sales-tax increase, but bonds and debt may be something the City may pursue if there’s a feeling that it can help bridge a gap until money comes in like it should. The downside, of course, is that bonds tend to cost a lot more in the long run.

For example, looking at HUSD’s recent $200,000,000 Bond issuance, the actual cost of that is going to be $460,000,000 over 30 years. And bonds get paid by our property taxes. The upside is that the agency gets a huge cash injection all at once, while the downside is that most of the money goes to line the pockets of Wall Street.

Another thing that has been discussed is selling City property. The former site of the Hayward Navigation Center on Depot and Whitesell is likely going to be sold. The Navigation Center’s functions will be moved to the new St. Regis facility in Downtown Hayward. While it may look like a desperate attempt to plug a hole on the budget, the property was slated to be sold months ago—it’s also kind of a weird lot, anyway.

In previous City Council meetings, Councilmember Syrop and Mayor Salinas have both been skeptical of selling off City property to plug systemic budget issues. Much like bonds, these are one-time cash injections that cannot be repeated. Nobody has mentioned using these strategies yet—but depending on the new City Manager and how bad the budget gets, that may change.

City Manager Interviews Likely Coming

The City Council has been accepting applications for their new City Manager. Acting City Manager Jayanti Addleman had only agreed to stay in the position until the end of 2025. Late last night, the City released a revised Closed Session Agenda which added discussion of the City Manager. And just today, a new meeting was added to the City Council’s calendar.

The meeting will be a Closed Session at Chabot College about the City Manager. This is likely the first round of interviews for the position. Sources within City labor groups had hinted that they would be involved in the City Manager selection process in some way, but it was unclear—even to them—what form that would actually take.

If the last hiring process is anything to go by, however, this will likely be a very quiet process insofar as the public is concerned.