City Stares Down $12 Million Deficit
In Which: Council thinks about what's most important to the City, Some go straight to cutting community services spending while giving PD a pass, And Events and business are top priority for some
City In Precarious Fiscal State
The City Council discussed the upcoming 2026 Budget on Tuesday night and the news did not please anyone. Although nothing was approved, some on the Council were visibly unhappy at the prospect of a $12,000,000 budget deficit for the upcoming year. Staff said that nothing could be done to balance the budget before the June approval, but they promised multiple budget check-ins and the City has reserves to cover the shortfall if needed.
Income Is Down While Expenses Are Up
City Manager Dr. Ana Alvarez started the meeting by saying the City is in a “precarious fiscal state” and facing “economic pressures ahead.” However, she assured the Council that Staff had been exploring multiple methods to cut costs. “Creative reallocations to meet regulatory mandates, cutting operating expenses, and also capturing some salary savings through some existing vacancies.” According to the Staff Presentation, these efforts have saved around $1,500,000.
Interim Finance Director Etman—who is also currently heading the Human Resources Department—stressed that balancing the budget will take time. “We need time and change takes time,” he said, “and decisions take time to be able to move the ship.” The presentation also took time to explain terms that may not be familiar to everyone.
Surplus = Revenue exceeds Expenses
Deficit = Expenses exceed Revenue
Reserve = Funds set aside for a specific purpose
Fund Balance = the left over General Fund money from year to year
Unassigned Fund Balance = Assigned by Council each year when available
Use of Reserves = Approved by City Council
Revenues for the City are expected to be around $219,700,000 which is $8,500,000 less than the previous year. Most of that money comes from decreased sales taxes and real property transfer tax—that’s money the City gets when someone buys a home. This more than offset an increase in property taxes.
The City’s Expenses are expected to be around $232,300,000 which is an increase of $11,200,000 from the previous year. Most of that comes from recent increases to salaries and benefits for City employees. Though this was offset some by the Fire Department pledging to cut its overtime spending in half to $3,500,000—though the City still expects to spend over $11,000,000 on overtime.
Don’t Expect Things To Just Work Out
In an interview with Councilmember Francisco Zermeño last summer, he was unconcerned with the budget at the time, which already had a structural deficit. At the time he said, “[it’s] money that will eventually come in… It’s always worked out.” However, Interim Financial Director Etman stressed that it won’t just work out this time.
“Hayward has been very fortunate,” Interim Director Etman said, “to be able to have one-time fixes… [But] the $12 million is too large. It’s too large to just say that we’ve balanced it [from reserves].” He explained that all the one-time fixes have been used. “I’ve run out of tools… It’s not just a one-time thing where you can make a fix.”
Interim Director Etman said that the City has enacted a 2% reduction across the board, though savings have been uneven from department to department. He mentioned specifically that Police, Fire, Development Services, and IT have made “different types” of reductions, though he elaborated on every department’s strategy except the Police department.
You Can’t Do It All
Interim Director Etman recommended a “no growth” scenario—essentially a hiring freeze—and a re-evaluation of all programs and departments with an eye toward redefining core services. He clarified, “This is the time where you talk about [how] you can’t do it all,” he said. “You have to re-prioritize your priorities because you’re not able to do it all.”
This led to Position Management, which essentially means taking a close look at every rehire and evaluating whether or not it’s worth keeping. “It is a $12,000,000 deficit,” Interim Director Etman said, “and it has to come from somewhere.” The presentation also reminded the Council of the recent Resident Satisfaction Survey results as a potential guide for evaluating the Core Services.
It’s worth remembering, however, the details of this survey. The recommendation for more visible Police patrols, for example, was a small subset of people who alleged they don’t feel safe in their neighborhoods—which was less than 25% of those surveyed. Most responses focused on housing, homelessness, and different kinds of community maintenance—streets, sidewalks, etc.
Priorities And Core Services
While many on the City Council wanted to make some kind of changes before the June budget is ultimately presented and adopted, Interim Director Etman said that’s unlikely to happen. “It’s due next week,” he said. “Any changes or discussions that you might be having or asking for the June 3rd portion would literally be due in the next three business days.”
He stressed that the budget will be revested multiple times throughout the year—including in the Fall—and each time will allow opportunities for change. City Manager Alvarez said she wanted the Council to think about what their priorities are and what they might consider a Core Service for their Fall discussion.
A Serious Focus On The Reserve
Councilmember Bonilla, who has been very vocal about the budget, appeared focused on the reserve balance. He started by asking about what effect any changes in the Transient Occupancy Tax (or hotel tax) would have on the reserve. Interim Director Etman stressed that any change would be minimal, likely around $100,000 at most. Councilmember Bonilla responded, “Whatever we don’t do with ToT is going to be a direct hit on the reserve that we have.” That change would be less than 0.1% of the deficit.
Councilmember Bonilla asked what the consequences would be if the City was forced to cover the entire shortfall with Reserve spending, bringing it down to 8%. “Your reserve is the only account that you have at the end of the day for a rainy day fund,” Interim Director Etman said, “That would not be best practice. I would not advise that happen.” Councilmember Bonilla believes the City should do whatever it can to protect the reserve. “I don’t like it being at 14% spendable,” he said.
Councilmember Roche tried to clarify how the reserve had gone from 18% to 14% in such a short time. Interim Director Etman said that Staff had switched to focusing on spendable reserves only—around $12,000,000 of the reserve balance is tied up in loans for the Watkins Garage and the Cinema Place property. Councilmember Bonilla took issue with having a loan in reserve. “That’s clearly not best practice,” he said.
However the loans will ultimately be paid back into the reserves. Assistant City Manager Dustin Claussen said that the payments on the loans will slowly convert the non-spendable loans to spendable reserve.
Ideas For Quick Fixes
Councilmember Roche asked about a data center that should be coming on line in Hayward this coming year. Specifically, she wondered what effect the Utility User’s Tax (UUT) would have on City finances since data centers use so much power. Public Works Director Ameri said that one of them may generate up to $2,000,000 per year of UUT revenue, however that wasn’t in the budget projection.
Councilmember Roche pushed about sales taxes, as well. Director Ameri said he wasn’t sure about sales tax. However, it will pay property taxes and the properties are valued in the tens of millions of dollars.
Councilmember Syrop asked the City Attorney about increasing the insurance deductible for the City in an effort to save money. Attorney Lawson said that the City could save around $1,000,000 per year, though that would mean the City would have to pay more before the insurance itself kicked in.
Boosting Business In Hayward
Multiple Councilmembers turned to Economic Development as a way out of the budget shortfall. Councilmembers Andrews and Goldstein focused on entertainment options, similar to their discussions during the hotel tax discussion. “I wanted to see how we can revisit [Economic Development] or other divisions to kind of help with entertainment,” Councilmember Andrews said. “I think this should be the highest priority right now.”
Councilmember Goldstein agreed. “Business development and events really is a hot topic,” he said, “because those two things are drivers of sales tax revenue and property tax.” He alleged that a Staffer in Economic Development had a report of ideas that can bring businesses to Hayward, however the City Manger had not seen it yet. “Those economic development options are right in our neighborhood,” he said.
Councilmember Syrop felt similarly and focused on old ordinances that may be holding the City back. He specifically cited the cabaret license and the definition of a “Full Service Restaurant”—which requires 50% of sales to be from food and numerous other regulations. “Where are we getting in our own way?” he asked. Councilmember Syrop also said that the Business License hasn’t been updated since 1975. “Really putting all these policies on the table,” he said.
Council Eyes Community Services Spending
Councilmembers Roche and Goldstein took aim at the City’s spending on supportive services while giving the Police Department a free pass. “Since PD and Fire get the lion’s share of the budget anyway, it sounds like this is not an area where we’re going to be cutting,” Councilmember Roche said. “So it looks like it’s other programs that Council has made a priority over the years.”
She expressed support for looking at the impact of the City’s money on community service providers and perhaps narrowing spending to fewer nonprofits with a bigger impact. “Spending our money more efficiently,” she said. Councilmember Goldstein agreed. “If we simply task ourselves with measuring that effectiveness,” he said, “maybe we can start to allocate funds where the effectiveness is really happening. That may sound a bit harsh, but frankly we need to do it anyway.”
The City Manager said that HPD did an organizational assessment that may result in savings and efficiencies. Councilmember Goldstein said treated any savings as a nice thing, but not a necessity.
Councilmember Syrop cautioned against cutting community services funding, which is a common first step for governments during budget issues. “I just want to be really careful about not cutting community services too deeply,” he said, “or at all as we look at reducing this deficit.” He stressed that these services were both preventive and an investment in our community.
Mayor of Hayward Mark Salinas agreed that we shouldn’t compromise on community services, but talked at length about the expense. “The investment we make in say, homelessness, it does help us in the long run,” he said, “but… it is very expensive to respond to the homelessness crisis that every Bay Area City is facing right now.”
The Mayor may have been reluctant to call for cutting community services spending due to the Resident Satisfaction Survey’s emphasis on homelessness and housing as core concerns. However, given his previous statements—wanting to end the Homelessness and Housing Task Force, stop the rental registry, and saying that the City has spent enough—any support may be conditional.
Councilmembers Andrews and Bonilla took aim at Alameda County and the money they send to Hayward for homelessness. “This budget document also says we get less than 1% of County investment in homelessness services,” Councilmember Bonilla said—though City Manager Alvarez said that the number was incorrect. Councilmember Andrews said she hoped the County would deliver the Measure W money that Hayward is owed, as well.
City Manager Ana Alvarez said that the Community Services Division is trying to get Measure W money, but encouraged the Council to lobby the Board of Supervisors, as well. She also said that there may be additional money from the State, but it may come with strings. “That may require our stance on encampments to change,” she said.
Governor Gavin Newsom recently called on cities to ban encampments of unhoused residents, even going so far as to release model legislation for them to use. It is unclear whether state funding will be tied to encampment bans, but it has not been ruled out by watchers of Sacramento.