Getting To The Root Of The Budget

This Is All Part Of The Story

On October 15th, the Council Budget and Finance Committee took a deep dive into the last 10 years of Budget Actuals in order to get to the root of the $30,000,000 deficit that is hanging over the City. While the primary issue appears to be around overtime—especially within the Fire Department—a 60 page spreadsheet of numbers can tell multiple stories. Let’s get into the numbers and look at the different stories that they can tell us.

The 10,000 Mile View

If you’re feeling extra and want to look at the last 10 years of Budget Actuals, you can look at the Presentation online. Annoyingly, it’s a PDF of a spreadsheet, so it’s not the easiest to work with. But here are some of the highlights that came to light during the meeting and during our own analysis of the numbers.

Looking at the last ten years, the deficit appears to come out of nowhere. Since 2016, only two budgets have started with an expected surplus: 2020 and 2023. Every other budget approved by the City Council since the first Trump Administration has started with a deficit, ranging from just under $1,000,000 to over $6,000,000.

Every year, the City Council does a mid-year revise around January where they can adjust the budget to deal with new realities—costs going up, money not coming in the way it should, or finding new sources of funding that weren’t available the previous June. In every year except 2019 and 2023, the mid-year budget revise was also approved with a deficit—from over $1,000,000 in 2022 to over $19,000,000 in 2024.

But the budget pretty much always recovers by the time the books close in the following July. In six of the last ten years, the City has ended with a surplus of money ranging from around $2,500,000 to over $5,500,00. But then suddenly the deficit explodes in 2024 to $30,000,000. How did that happen?

Rising Cost Of Payroll

In any business that relies more on people than machinery, the cost of Payroll—paying the people who do the work—is going to be the largest part of the budget. The City of Hayward is no different. Between 2016 and 2024, Salaries and Benefits took up between 72% and 80% of the budget, which is in-line with most local governments. But in 2025, that number leapt up to 94.5%.

In looking at how that happened, we can look at how Salaries increased over the years. Between 2016 and 2021, the amount the City paid in Salaries increased between 1.3% and 4.1%, about in line with expected inflation increases. But between 2021 and 2022, it went up 7.1%, then 5.3%, then 7.8%, then last year it jumped 22%. The cost of benefits also went up almost 19% that year, when it had never been above 9% before then.

But not all salaries are created equal. A 22% increase wasn’t approved across the board—and even if it were, a 22% increase for a Clerk I is a lot different than a 22% increase to the City Manager’s salary. In looking at old Salary Schedules and old City Council agendas, recent pay increases were only around 5%—nowhere near the surprise 22% increase in Salary costs.

When looking at All Expenses By Department, we can see some interesting things, as well. Some departments had massive increases—by percentage—in their expenses between 2024 and 2025. Police went up by 22.9%, City Clerk went up almost 40%, and the Mayor and Council went up by 22.2%.

But, again, percentages don’t mean the same thing when it comes to raw spending. Police going up by 22.9% means an almost $20,000,000 increase in spending, while a 38% increase in the City Clerk’s Office added less than $500,000. But even with all of that, total costs went up only 13% between 2024 and 2025, while at the same time we ended 2024 $13,000,000 under budget, and 2025 ended over $10,000,000 over budget.

Taking A Closer Look At The Fire Department

If we look at the Over Budget Actuals by Department, most departments are pretty consistently under budget before 2021. Fire, Utilities, and Public Works are some of the only departments to go over budget between 2016 and 2021. But while the other two departments go over a few thousand or a few hundred thousand, the Fire Department consistently goes millions of dollars over budget starting in 2017—and getting worse and worse every year.

Fire starts 2017 at $1,500,000 over budget and by 2025 is $12,000,000 over budget—the entire City winds up only being $10,600,000 over budget. That means that other departments wound up subsidizing the Fire Department’s overspending. But there hasn’t been a huge hiring bonanza within any department—especially the Fire Department. So this extra spending had to come from Overtime costs.

We talked about overtime costs in the past, but this spreadsheet really lays out why the overtime blew up the budget so badly. If we look at the Budgeted Overtime for the Fire Department, between 2016 and 2018 the budget was just over $2,000,000 per year. For context, Police had an Overtime Budget of around $3,400,000 per year for the same time period.

But in 2019, the Fire Department’s Overtime Budget plunges to a mere $96,000—less than 5% of the previous budget. Councilmember Ray Bonilla Jr. pointed out this issue during the meeting and Assistant City Manager Mary Thomas provided some context.

According to what information she could find, a Firefighter Training building was set to be demolished in 2019, so the City over-hired a bunch of Fire Fighters to make up for the lack of new incoming recruits. The Overtime Budget was slashed because there were so many extra hires, there shouldn’t have been a need for Overtime. This ignored the fact that Fire was already going over budget by between $1,600,000 and $2,800,000 every year with the bigger budget.

Even that year, the Fire Department spent $3,800,000 in 2019 which is around as much as it spent in 2016 and 2017. The extra hires only brought down Overtime spending by around $1,000,000 from the year prior. But the issue wasn’t necessarily the spending, it was the fact that the Fire Department’s Overtime Budget was never replaced—it has stayed at $96,075 since 2019.

Over the same time period—due to retirements and minimum staffing requirements in their employment contracts—the actual spending on Overtime has jumped to over $8,000,000. The minimum staffing requirements play a huge part in that, between special assignments and what 24/7 staffing actually means.

For example, the HEART program’s Mobile Integrated Health Unit (MIHU)—now defunct—was staffed by Firefighters. But because they refused to do the work as a part of their regular duties, any staff on the MIHU had to be back-filled with overtime. That cost the City over $1,200,000 per year to run. “We have overtime baked into the contract,” Assistant City Manager Thomas said.

Councilmember Syrop pointed out that dealing with overtime is necessary. “It feels like this question around minimum staffing is kind of central to us getting to the meat of this deficit,” he said. However the City’s hands are tied by contractual obligations because the minimum staffing is in the contract, so cuts would have to come from other areas—for example, library hours—which are not contractually defined.

“I would hope that as partners running the city,” Councilmember Syrop responded, “I would imagine we would want out residents to have more library days.”

Whose Idea Was This?

According to the Staff Report attached to the 2019 Budget, the changes were proposed by Nicole Gonzales—then a Budget Officer—and approved by Dustin Claussen—then the Director of Finance. During that same time period, Dustin Claussen went on to become Assistant City Manager and Nicole Gonzales became the Director of Finance.

Then-Acting City Manager, Dustin Claussen, left Hayward for San Leandro in early 2025. Nicole Gonzales, then Finance Director, also left Hayward for San Leandro in early 2025. Then in late 2025, the City discovers that the Budget—having been put forward by Claussen until 2022 and Gonzales until 2025—can’t sustain the generous raises that Council approved.

The Story Is, It Went To The Workforce

As we mentioned before, the City Council approved generous salary increases for all of the Employee Unions of 13% over 3 years. And that increase, while needed to maintain market rates, couldn’t be sustained with the unrealistic budget that the City Council was working with. Assistant City Manager Mary Thomas said that the raises may have been implemented too quickly, given hindsight.

Councilmember Bonilla said, “Between salaries and benefits between 2024 and 2025, we roughly increased by about $40,000,000.” Assistant City Manager Thomas agreed, but clarified it was closer to $35,000,000. “We invested $40,000,000 in workforce salaries,” Councilmember Bonilla said.

Hayward Mayor Mark Salinas agreed, framing it as an important story that the City needed to tell. “That’s why I wanted to go back and present it this way,” he said. “This is all part of the story. When the newspaper calls me, this is what they’re interested in.” Assistant City Manager Thomas said, “When people ask where did the money go… it went to the workforce.”

But the Overtime can’t be ignored. “That’s $12.5 million out of 19 that I just identified,” Councilmember George Syrop said during the meeting. And while that’s true, Assistant City Manager Thomas also pointed out that wages went up for everyone. “The story is not as simple as last year overtime spiked,” she said, “because it’s only $2,000,000 more than last year. The story is more that everything went up, including our overtime.”

Potential Plans For Fixing Things

Since the issue of overtime isn’t going away unless the Firefighter’s Association Local 1909 decides to bargain it out of their existing contracts, other things need to be done in order to dig the City out of a $30,000,000 hole. The levers that the City can work with are: making staffing cuts, increasing revenues, and dipping into Measure C.

Making Cuts To Staff

Before looking at layoffs, the City is in negotiations with all bargaining groups to try to get concessions out of the current contracts. As pointed out above, the current contracts aren’t sustainable, but that doesn’t make them less legally binding. That being said, it’s important to remember that some bargaining groups have more of an impact on the budget than others.

Councilmember Bonilla pointed out the importance of tackling Police and Fire. “Police and Fire already have such a significant portion of the budget—so how do we control costs within a relatively generous allocation already, so that it doesn’t have such significant bleed-over and then impact other parts of the city?” Assistant City Manager Thomas hoped that new control policies will come out of this whole process.

But Councilmember Bonilla didn’t rule out staffing changes. “If we’re at 94% [of the budget going to Salaries and Benefits],” he said, “do we have the right number of employees?” Ms. Thomas responded, “That’s the question that we’re going to have to ask this year.”

Councilmember Syrop agreed that staffing needs to be looked at. He said that the City either needs to cut headcount or renegotiate contracts in order to address the deficit. With that in mind, the City is trying to do at least two meetings with each bargaining group before the Fall Revise on November 18th. “The longer we prolong this, the worse it gets,” Councilmember Syrop said.

Increasing Revenues

On the other side of the equation from expenses is revenues. The City doesn’t have a lot of ways to drastically increase revenues, but there are some places worth looking at. If you look at Page 15 of the budget handout, there’s a section on Revenue Actuals. The bulk of the money comes from Property Tax, then Sales Tax, then the Utility Users Tax—most of which is paid by Hayward Residents.

Increasing any of these taxes is complicated and a political nightmare. But there are other levers worth exploring. One of them is Cannabis Revenue. As we covered in September, a dispensary is looking to move into the old Walgreens on Grove and Foothill. If it’s approved by the City Council, it could have a significant impact on the City’s budget.

“How many cannabis businesses are contributing to that Cannabis Revenue?” Councilmember Bonilla asked. “Just one,” Assistant City Manager Thomas said. Cookies, as one business, contributes over $750,000 a year in Cannabis Taxes alone. That doesn’t take into account sales taxes and property tax and other ways the City collects money from businesses. “These cannabis dispensaries contribute more than just cannabis tax,” Councilmember Bonilla said, “they contribute taxes in other areas.”

If a second dispensary is approved, that figure could potentially double in just that one section alone—overtaking the expected $1,100,000 in taxes that Cookies has failed to reach on its own. Councilmember Bonilla pressed for the Council to consider this benefit, “when we’re considering a million-dollar revenue generating business in our community.”

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Another tax is the Utility Users Tax, which taxes electricity among other things. That will likely get a huge boost from the Stack Data Center that was approved earlier this year. According to Public Works Director Ameri, it may generate up to $2,000,000 in UUT revenue every year.

Finally, the Business Tax has remained pretty stagnant since 2016—only increasing 50%, and even that has mostly been from adding more businesses. “Business Tax hasn’t been toughed for a while,” Assistant City Manager Thomas said. Everyone on the Committee felt that it was worth looking at, but needed to not be so high as to discourage businesses from opening in the City.

“I agree with the Mayor,” Councilmember Syrop said, “that we don’t want to discourage businesses from setting up here, but if we’re criminally under-charging [we] also can demonstrate to our labor partners that we also are looking at revenue generation beyond just contracts.”

Dipping Into Measure C Money

In order to ensure that the City has sufficient money to pay their bills next year, the City is going to have to dip into Measure C. Measure C is, technically, unrestricted General Funds that the City Council effectively pinky-swears they’ll use for certain purposes—this tactic lowers the threshold needed for it to pass in an election. So the City can legally use these unrestricted funds for whatever they want.

Measure C has approximately $21,000,000 in it right now, and earns a lot more than it is budgeted to spend until it sunsets in 2037. Thankfully, there appears to be no risk of over-spending it. “We’re not concerned, from a cash-flow perspective, of spending it all down,” Assistant City Manager Thomas said. But it won’t last forever.

“There exists some kind of wall,” Councilmember Syrop said, “where we get to that point and we don’t have the unrestricted funds.” This would happen next year, and that’s bad news. “If we get to the point where we can’t make payroll, we’re effectively breaking our contracts,” Ms. Thomas said.

Mayor Salinas was not happy about taking money from Measure C and pushed to pay it back somehow afterwards. “That was to do infrastructure,” he said, “and if you look at other tax measures in other cities, [they] have failed miserably with the voters to pay for salaries. This is not what all of us and prior councils went to voters for. This right here is precisely what we did not do.”

But Councilmembers understood that it was necessary. “Right now we’re finding ourselves in a situation where this is our only avenue or we’re gonna bankrupt the city,” Councilmember Bonilla said. The Councilmembers were primarily concerned about violating the public’s trust. So, after the City borrows from Measure C, there will likely be some plan to pay it back—even if it takes 20 years.