Fitch Downgrades $649 Million of Oakland City Debt

Fitch Ratings, one of the three major credit agencies for public and corporate debt, downgraded $649 million of Oakland bonds on June 9, 2011.

The City's long-term general obligation bonds, pension bonds, and lease bonds were reduced one step each. Short-term notes were not affected.

In blunt language explaining the downgrade, Fitch Ratings pointed out the growing gap of costs over revenues. Fitch wrote, "Not solving the structural imbalance would result in a fiscal 2013 projected shortfall of $76 million, growing to over $100 million by fiscal 2015. However, many of the proposed fiscal 2012 budget solutions are one-time, most are difficult, and all indicate how little financial flexibility the city has left." (Fitch news release, June 9, 2011)

Oakland mayor Jean Quan never presented a budget to the council as the city charter requires. Instead, she submitted three "scenarios." None of them could be adopted as an official budget document, and all are designed solely for a political purpose – Quan tries to pressure city councilmembers into supporting yet another parcel tax on Oakland homes and apartments. Without putting the City on a track of durable solvency, a parcel tax would not prevent the same budget crisis from bursting out again a year from now. Quan tax-2011 would be followed by Quan tax-2012 next year.

Quan previously led the Oakland school district into a $100 million bankruptcy when she was president of the school board, ignoring clear warnings in staff documents and from a state auditing agency.

In 2008 when Quan chaired the finance committee of the city council, she approved now-disgraced city administrator Deborah Edgerly's raid on the reserve fund. The budget adopted that Spring maintained spending beyond the City's means, taking reserves from $70 million to $10 million with the sweep of a pen.

Mayor Quan talks about sacrifice, but she has not asked for a dime from the horde of duplicative, ineffective, and sometimes corrupt social programs that receive millions of dollars in City grants every year. Nor has Quan proposed rolling back the so-called Kids First budget set-aside, which starves City programs of funds in order to disperse money to the social program operators.

If the City does not forge a structural solution for its annual budget crisis, the only alternative is bankruptcy in a few years if not sooner. The Fitch Ratings downgrade of City debt is another step in that direction. The downgrade will also raise financing costs for the City from now on whenever it goes to the credit markets.