Hayward council hears five‑year forecast, weighs tax and spending levers to close projected deficit

Hayward City Council met in a special work session on Feb. 4 to review an updated five‑year general fund forecast and discuss options to address a projected structural budget deficit, with staff and council members exploring revenue and expenditure strategies but taking no formal votes.

City Manager Grama Alvarez told the council that while the city closed last year “in a net positive position,” staff projects a structural deficit that will require use of general fund reserves unless the council adopts changes. Assistant City Manager Regina Youngblood, serving as acting finance director, said the city closed 2024 with a surplus “of just over $900,000,” in part because auditors recommended reclassifying an $8,600,000 loan to the Hayward Economic Development Corporation as a loan receivable rather than an expense.

The nut graf: the session was a workshop, not a decision meeting; staff presented an interactive forecasting model and asked councilmembers to indicate priorities for balancing the budget ahead of mid‑year adjustments planned for February. Councilmembers split into three breakout groups to rank options; common preferences included raising the transient occupancy tax (TOT), taxing short‑term rentals, prioritizing core services and examining hiring freezes and vacancies.

Staff presented the revenue and expenditure picture underlying the forecast. Key figures explained by finance staff included property tax revenue of roughly $88,200,000 and an estimated annual utility users tax of about $28,400,000. Youngblood said salaries, benefits and pension obligations are the largest expenditure category. Finance staff described an average annual general fund subsidy to other city funds of about $7,100,000, split roughly $3.2 million to capital projects and $3.9 million related to internal service charges.

To test options, budget officer Nick Mullins displayed a consultant‑built model that shows reserve impacts under different combinations of levers. The model currently projects using about $6,000,000 in reserves in the current fiscal year; many of the strategies shown would not realize full savings until the following fiscal year. The model includes visual targets a 20% reserve goal (solid red line) and a 10% caution line (dotted red).

Council questions and group work highlighted several recurring options. Councils’ breakout rankings gave high priority to: 1) increasing the transient occupancy tax (several groups said 12% as a starting point), 2) taxing short‑term rentals (listing platforms such as Airbnb/VRBO as examples), and 3) prioritizing core services programmatically. Staff described possible expenditure controls including reducing discretionary travel and training, delaying or reducing general fund subsidies to capital projects, and limited hiring freezes or targeted vacancy reviews; staff estimated a three‑month hiring freeze could yield about $3,600,000 in savings under one scenario.

Public comment reiterated similar themes. Former councilmember Al Mendo urged the council to stop counting illiquid property holdings as reserve cash, to sell surplus properties to replenish liquid reserves, to increase the hotel tax and to avoid using Measure C (K‑1) funds for ongoing operating costs. “If you're gonna use Measure C money, use it for one‑time expenses,” Mendo said. He also asked the council to “put a freeze on your own pet project discretionary spending until the reserve is back up above 20%.”

Staff emphasized next steps: no decisions were made at the work session. City Manager Grama Alvarez and the executive team will incorporate council feedback, refine assumptions in the model, and return with staff recommendations to support mid‑year budget adjustments scheduled for February. Youngblood and finance staff said they will also provide additional detail on vacancy levels and the liquidity of reserve components at a future briefing.

The session included detailed technical questions about accounting treatment and cash flow: staff said the loan receivable tied to the city’s economic development corporation is recorded under generally accepted accounting principles (GAAP) and contributes to the city’s fund balance but is not equivalent to immediately available cash. Council members requested a clearer breakdown of liquid versus illiquid reserves and an inventory of surplus properties for future consideration.

Ending: Councilmembers and staff generally expressed a willingness to continue collaborative work with labor and department leaders on measures that minimize service impacts. Staff reiterated the commitment to return with sharpened recommendations that reflect council priorities, with formal decisions deferred to future council action.