Council Approves Millions In Cuts

City To Cut Over $6 Million In Staffing

Despite efforts to cut expenses in response to the surprise $30,000,000 deficit discovered four months ago, the City of Hayward is planning to take drastic action to be able to balance the budget. Among the strategies are transferring money from Measure C, maintaining vacancies, and cutting over $6,700,000 in personnel costs. The City is in continuing discussions with bargaining groups to determine what form those cuts eventually take.

This is the first round of austerity measures that the City is taking to stabilize funds for this fiscal year. Staff indicate that more systematic changes will be necessary to bring next year’s budge into balance. The discussion around those changes will occur during the budget development cycle in February.

A Quick Recap Of How We Got Here

The City of Hayward has been facing a huge budget deficit since a press release was sent out on August 29th. But even before then, it was facing a manageable deficit of $12,000,000 in May which was then wrangled down with one-time savings down to just under $9,000,000. According to City Staff, the reserves were more than enough to absorb that shortfall—there should have been over $22,000,000 left in reserves afterward.

To reach even that little of a deficit required some vacancy savings, reducing supplies and services, reducing transfers out of the General Fund, and also adding some one-time transfers into the General fund. But even then, interim Finance Director Sharif Etman noticed that $3,500,000 of that deficit was from Fire Department overtime.

Unfortunately, the deficit only continued to grow from there. The revised budget for last year only predicted a $7,100,000 deficit, but when the accounts were all settled for the year, it was clear that had grown massively to $30,000,000. “That reduced the beginning fund balance to $1,000,000,” new Finance Director Deanna Hilbrants said. “Much of that difference in expenses had to do with salary and benefits resulting from labor contracts negotiated over the last couple of years by previous staff.”

Many of the contracts were negotiated by former interim City Manager Dustin Claussen and former Finance Director Nicole Gonzales, both of whom left for the City of San Leandro at the beginning of this year. “What we’re doing here,” Assistant City Manager Mary Thomas said, “is basically acknowledging that at the time former staff had given [City Council] advice that we could afford those [raises] and we’re discovering that we now can’t afford those.”

We Found A Leak

The City needs to take immediate action to balance the current year’s budget. If nothing is done, the City will have another deficit year of around $26,400,000—only this time there will be no reserve. Staff has taken some action, however, mostly by holding vacant positions and reducing overtime wherever they can. They’ve also contracted an outside financial review on top of the annual audit to get as many eyes as possible on finances.

In an effort to better track expenses, they’ve also been reviewing actual payroll data every other week, conducted a 10-year review of budget-to-actuals for both the General Fund and Measure C, have already reviewed first-quarter budget-to-actuals, and have re-examined the forecasts for major revenue sources.

Essentially, City Staff noticed a leak in the boat, bailed a little water, and then scrambled to find out where the leak was coming from. Unfortunately, they still have to find a way to plug the hole and finish emptying the boat.

Reduced Revenue Expected

Part of the reason that the deficit was so big last year was an over-inflated estimate of how much money the City would bring in. Staff re-evaluated expected revenue for this year and reduced the expected revenue from the Real Property Transfer Tax (when you sell a house), Utility User’s Tax, Transient Occupancy Tax, and some others. Some one-time transfers into the General Fund helped to plug this new gap of over $6,000,000.

Increased Costs Expected

The other, much larger, part was increased costs. By re-examining the cost for Salaries and Benefits, the new projection includes an additional $13,500,000 in salary costs, and over $2,000,000 extra in Supplies and Services. Along with some other smaller amounts, the City is expecting to spend around $17,600,000 more than they expected when the budget was approved in June.

Adding all that into the deficit that was actually approved, and that’s how the City got to the point where it expects to end this fiscal year with an over $26,000,000 deficit.

Plugging The Hole To Stop The Leak

Some drastic changes need to be made in order to keep the City afloat for this year, let alone any future years. So City Staff recommended a number of measures to address the deficit.

• Transfer/Loan from Measure C - $9,700,000
• One-time Transfers and Reducing Transfers Out - $1,900,000
• Anticipated one-time revenue - $1,500,000
• Increase Transient Occupancy Tax (hotel tax) - $250,000
• Hold additional vacancies and reduce Overtime - $2,900,000
• Reductions in Services and Supplies - $2,400,000
• Lay off temporary employees - $1,000,000

Unfortunately, that only gets to $19,700,000 out of over $26,000,000. The remaining funding needs to be covered by cuts to personnel. “We have to make decisions before the end of the calendar year in order to achieve cost savings,” Assistant City Manager Thomas said. “So we would be moving towards the layoff provisions in the [Memoranda of Understanding] MOUs if we cannot achieve those savings in other ways.”

The whole plan is to reduce the current fiscal year’s deficit entirely with the actions approved at this meeting. But the budget will return to City Council in February with ongoing solutions to fix the deficit in FY 26/27 and subsequent years.

Clarifications And Fixing Bad Practices

Councilmember Julie Roche asked why some positions were still active if there was a hiring freeze. Staff explained that there have been 21 new hires since July 1 with 15 in the Police Department—mostly because they are expecting more retirements this year. “We just need to back-fill retirements,” Assistant City Manager Thomas said. Five others were not General Fund positions and the last one was for the new Finance Director—which is kind of important to have in a fiscal crisis.

When Councilmember Roche asked if we should still be doing hiring at all with the Police Department, Ms. Thomas explained. “We’re trying to just maintain that level of vacancies,” she said. Police Chief Bryan Matthews said that there are currently 38 vacancies in the Police Department—24 are sworn officers—and that hiring takes around 18 months from application to being field-ready.

“There has to be a mechanism for us to continually work toward filling some of these vacancies,” Chief Matthews said. However, he is trying to keep the vacancy rate flat instead of aiming for growth. “As we onboard people, people leave,” he said.

Councilmember Roche also asked how Staff are making sure that bad practices aren’t continuing. Assistant City Manager Thomas said that she shared that concern and would be looking at policies that haven’t been followed and possibly adding new policies in the coming months. They would also integrate recommendations from the outside reviewer and leverage the expertise of Ms. Hilbrants.

The other part of the equation is oversight. “We just need to be tracking actuals and be really transparent,” Assistant City Manager Thomas said. Acting City Manager Jayanti Addleman said that the City is definitely on the right track now. “We did uncover right away some of the problems, so we are on that track and that’s part of why we were able to uncover all the issues we’ve had.”

Councilmember Angela Andrews asked how the City is ensuring managers are managing overtime expenses. Assistant City Manager Thomas said that all non-safety departments have barred any overtime. However, public safety departments have mandatory overtime due to minimum staffing requirements—though eliminating special assignments from the Fire Department helped.

Councilmember George Syrop asked how bad it would be without the one-time fixes that are being suggested. Assistant City Manager Thomas said that without the hiring freeze it would be $36,000,000 at the end of this year. “I just want to make sure we all understand the gravity of the satiation,” Councilmember Syrop said. “Also what we’re looking down after we make this decision.”

How Difficult Would It Be To Not Touch Measure C?

The idea of taking and borrowing from Measure C to fix the deficit did not sit well with many on City Council. Councilmember Roche asked, “Howe do we make that transfer to the General Fund and keep those dollars within Measure C’s intended purpose?” Assistant City Manager Thomas explained that Measure C “speaks to maintaining and enhancing operations” which is very broad language that could apply here.

Even though positions are already funded by Measure C, there is significantly more revenue in there than it needs, so it won’t be hurt at all. The proposed transfer only accounts for 60% of the funds in Measure C.

Councilmember Andrews expressed concern about the loan being a 0% interest loan, but Staff reassured her that the balance is good and that they will explore accelerating repayments. However, Councilmember Andrews wanted more oversight of Measure C. “I would like to see that we have a budget [for Measure C] even if it’s not required,” she said, “because we are essentially robbing Peter to pay Paul and I don’t want us to continue to do that without a full picture.”

Mayor Mark Salinas asked, “How difficult would it be to not touch Measure C and fund $9,700,000 from other areas?” Assistant City Manager Thomas said that the only option at that point would be to increase personnel cuts by that amount. Everything else has already been done.

New Revenue Delayed

Councilmember Roche asked about the expected increases to the Utility User’s Tax (UUT) and Cannabis Tax revenues. The Stack Data Center is expected to come online in the next year or two—assuming that the AI bubble doesn’t burst before then—and a new cannabis dispensary has been proposed, though approval was not recommended by the Planning Commission. Both of these could bring substantial extra revenue to the City of Hayward.

Unfortunately, none of them would come online until FY 27/28. The City is waiting for them to be open and operating for a full quarter before counting their revenues. On top of that, the UUT revenue may be lower than expected, according to Staff, because some data centers are already having issues getting all the power they demand, so they may be generating on-site—which would not be taxed—or operating at lower power, which would result in less revenue.

Right-Size Staffing

Councilmember Bonilla asked Staff to consider developing a staffing philosophy model in the future. “Are we right-sized, in terms of staffing?” he asked. Staff said they could try to bring something forward by February. Councilmember Bonilla has asked on multiple occasions whether the City has the right amount of personnel—hinting that the City may be over-staffed.

Unions Highlight Problems And Bring Solutions

Members of the City’s three non-emergency services bargaining groups—SEIU 1021, IFPTE 21, and HAME—showed up in force and spoke during public comment. Many of them highlighted the problems that the budget cuts would bring to their departments, while several others highlighted potential ways to avoid personnel cuts with other revenue sources.

Danny Magalhaes, President of HAME, took issue with the City proposing cuts and asking for concessions from groups that aren’t even funded by General Fund money.

Lindsey Vieira, a dispatcher for the City, encouraged the City to not cut Part Time workers. She highlighted that they reduce overtime and are less expensive since they don’t get retirement and other benefits—using them also reduces burnout for full-time employees.

Michelle Nogales, from IFPTE 21 and Librarian at Hayward Public Library, pointed out that recently lost 20% of their materials budget, which would impact all levels of their service. On top of that, they will also be losing part-time employees and will be forced to cut library hours to 5 days a week instead of 6.

But others brought solutions that could be considered. Emily Wallace from IFPTE 21 suggested pulling more from Measure C. “It is unacceptable that the City has requested additional concessions… when we know there’s enough Measure C money to offset this remaining gap,” she said.

Evelyn Olivera of SEIU 1021 highlighted the state of the Business License Tax. “[It] hasn’t been raised since I was 7 years old,” she said. “It reflects a revenue structure that has not kept pace with the changing needs, costs, and realities of running a modern city. There is no room for hesitation or concern about political optics when the fiscal health of the city is at stake.”

And Elizabeth Blanton, Vice President of HAME, recognized that the people at fault were not present to face the consequences. “There’s a lot of folks that are not in this room that I think bear some responsibility [for where we are],” she said. But she called for collaboration. “We all, I think, have the same goal and that’s just to get through this first hurdle so that we can tackle phase 2 together.”

Former Elected Officials Scold City Council

Three former elected officials took the time to give public comment on the state of the budget. Former Mayor Michael Sweeney scolded the City Council on letting the budget get to its current state. “You owe the public an explanation. How could this have happened? You clearly weren’t paying attention to the numbers. You clearly weren’t tracking them,” he said.

He compared it to his own time on the City Council. “When I sat up there, we would go through the numbers all the time on a monthly basis,” he said. “There needs to be more urgency here. He then took aim at the City Council’s salary increase. “Who gets a 70% raise for doing a lousy job?” he asked. The City Council’s pay had been flat since 2004 and they took a voluntary pay cut in 2009 before implementing a raise in November 2023.

Former Mayor Barbara Halliday also took issue with the pay increase. “One thing we did not do is reward ourselves with big salary increases and I really resent that we gave up the COLA… almost every single year,” she said. For context, the total increase of all Councilmembers and the Mayor combined account for approximately $132,800 of the $26,000,000 deficit—less than .5%.

Ms. Halliday continued, “You need to lead by example.” The City Council approved a voluntary pay cut at the end of October. Ms. Halliday then expressed disappointment at the loss of the MIHU program—which was largely funded by Firefighter overtime to the tune of $1,200,000 per year—and the loss of Community Services funding.

Former City Councilmember Al Mendall also spoke pointedly about the City Council and the state of the budget. He explained he was on Council “back when the City was balancing its budgets in a real way.” He continued, “It pains me to see where current leadership has brought this City.

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During his comments, Mr. Mendall pointed out the times he had warned the City Council about financial decisions he deemed unwise, including Council pay raises, the purchase of the Cinema Place property, and raises. He spoke to the gathered Union members, “You deserve raises, by they need to be raises the City can afford. I warned you that you were being too generous.”

He also pointed to the former City Staff’s issues around the budget. “We’ve been lied to for two years on the budget,” he said. But ultimately he placed blame on the City Council and demanded they fix it. “I know, I had to do it, Mayor Halliday had to do it, Mayor Sweeney had to do it. It’s your turn,” he said. “That’s what it’s going to take to clean up the mess that your failed leadership has created. Do better. Do better. Do better than your predecessors.”

Council Apologizes And Blames Bad Info

The City Council used their time after public comment to apologize to the City of Hayward for its financial position. “I know this is all very disappointing,” Councilmember Roche said. “I am disappointed. I want to start by saying I’m sorry. I understand everyone is here for their pound of flesh and I get it. We made promises we will not be able to keep… I’m sorry I was up here being part of the problem.”

She recognized that the coming months would be more painful. “Fixing this structural budget is going to be painful throughout the entire organization,” she said. “This is a balance of keeping employees… but what does robing other funds mean for the long-term fiscal health of the city?”

Councilmember Dan Goldstein apologized because he promised that the City wouldn’t touch salaries and benefits. “I meant it when I said it, but to my shame, I was ignorant. We’re in trouble,” he said. “We made our decisions to reward you with the salary increase and benefits that you deserve based on false numbers.”

Councilmember Ray Bonilla also pointed to incorrect budget numbers. “I was under the impression that the revenues of the City were much higher than they actually were,” he said. “I thought [raising salaries] was the fairest thing to do considering the fiscal health of the city when we were making those decisions. The financial health that we were presented wasn’t the reality.”

Councilmember Syrop took pains to absolve the Unions of any blame. “The contracts that we approved were our attempts to honor your dedication,” he said, “especially as we emerged from a global pandemic. This deficit is not the fault of any union, but the result of poor management and financial controls going back nearly a decade and that buck stops with us and we bear that responsibility, as well.”

Councilmember Francisco Zermeño pointed out that he had no reason to disbelieve City Leadership. “I have worked with five City Managers in the City of Hayward and in those years I was always trustful of the recommendations of every one of them,” he said. “I had no reason not to believe the recommendations of the City Manager… My apologies and let’s all work together.”

Mayor Salinas seemed to feel most hurt by the comments from former elected officials. “None of us campaigned on this,” he said. “I feel I failed. I really do, as a mayor. It hurts when I have my two predecessors come up here and say what they said. It hurts and I feel I disappointed them.”

Some Also Have Other Thoughts

Councilmember Andrews struck a slightly different tone. “I have been asking for months for this report for the sake of transparency,” she said. “Even when we did cut our salaries, I said we need to do more.” She then ask for a number of things, including looking at overtime. “We need to ask all divisions, not just public safety, in how we all can be more efficient,” she said.

Councilmember Andrews also had a list of reports she requested: monthly budget-to-actuals to Budget and Finance Committee—quarterly to City Council, 5-year and 10-year projections, a 10-year look-back, and full projections of all funds—including liability. She also called for a change in Council attitude. “We need a ‘If we can’t afford it, we can’t do it’ attitude,” she said. “Council should not be making any more one-time requests at this time.”

Mayor Salinas appeared to lay some blame on the community. “In the wake of George Floyd, communities demanded more of local governments,” he said. “Hayward stepped up. We launched innovative programs… we expanded services… we supported small businesses, established a navigation center… we reimagined aspects of public safety… we did not say no to what the community asked for and to our detriment it hurt us.”

The City Council voted unanimously to implement Staff’s recommendations for how to balance the budget.