SAN FRANCISCO - Oakland plans to balance its budget by the end of the month and to bring $70 million of general obligation bonds and as much as $185 million of tax and revenue anticipation notes to market next month.
California's eighth-largest city last week received negative outlooks on its AA-minus GO rating from Standard & Poor's and its A-plus rating from Fitch Ratings. Moody's Investors Service kept a stable outlook on its A1 rating.
Mayor Ron Dellums and the City Council have pledged to close a projected $83 million budget gap in the $497 million current services general fund budget for the upcoming fiscal year by June 30.
The size of the gap led to some speculation in the local press and among City Council members that Oakland might have to follow nearby Vallejo into bankruptcy. The mayor and the council leadership have since issued statements saying they are not entertaining the option.
"We have some challenges," said Joseph Yew, the city's treasurer and finance director. "The mayor and the council are working together to come up with a balanced budget that not only maintains the level of services that we need to provide our citizens, but also deals with the challenging economic environment of decreased revenues."
City officials predict a $51 million decline in revenue to $414 million in fiscal 2009-2010. Expenses would rise $32 million without action to trim the budget.
"The outlook revision to negative is based on Oakland's significant near-term budgetary pressure due to declines in its economically sensitive tax revenues and property values, coupled with rising fixed costs," said Fitch analysts Alan Gibson and Amy Doppelt in a release.
While the revenue decline is sharp, the city of 425,000 people came into the economic downturn with strong general fund reserves of about 21% of spending, they noted.
Oakland's reserves helped convince Moody's to maintain its stable outlook on the credit, despite high debt levels and the recession.
"We believe the city is well positioned to address these challenges, and we expect the city will rebalance its budget without significantly weakening its balance sheet," Moody's analyst Michael Wertz said in a report.
Oakland plans to sell $70 million of voter-approved GOs to finance waterfront improvements, including parks and creek restoration projects near Lake Merritt. The bonds are scheduled to sell on or about July 13 in a negotiated deal led by JPMorgan. De La Rosa & Co. is co-senior manager on the issue.
The city also plans to sell up to $185 million of tax and revenue anticipation notes in mid-July. Part of the offering will be taxable and part will be tax-exempt. The taxable amount is still being determined because finance officials have not decided how much of the city's pension costs to prepay in order to get a lower pension payment.
Barclays Capital is the book-runner on the Trans. JPMorgan is the co-senior manager.