Hayward officials outline $12.6 million structural deficit, plan fall "revise" and program reviews

Hayward City officials told the City Council at a May 13 budget work session that the proposed fiscal year 2025–26 operating budget shows a $12,600,000 shortfall and that staff will pursue program reviews and a scheduled fall revise to reduce the gap.

City Manager Dr. Alvarez opened the meeting by stressing the session was for discussion only. “This is a discussion-based work session. No decisions will be made at this evening,” he said, noting the presentation was intended to gather council feedback before the budget adoption process.

Interim Finance Director Sharifa Atman presented the fiscal outlook and several key figures: a $232,000,000 general fund expense plan, projected general fund revenue of about $219,700,000 and $31,600,000 in spendable general fund reserves. Atman said reserves fall short of the City’s general fund reserve policy target of 20% (about $46,000,000 for next year) and that one-time fixes such as ARPA funding and prior cash transfers have run their course. “When the number started to settle, it settled at $12,600,000,” Atman said.

Why it matters: staff said the gap is structural rather than a one-time timing issue and therefore requires multi-year, programmatic changes, not just using reserves. Atman told council that relying on reserves to close the full gap would be “imprudent and unwise,” and said the city has already used tools such as vacancy savings, a department-level reduction effort and deferrals of certain projects.

Revenue and expense drivers - Property tax remains the largest revenue source (about $80,000,000 projected) but growth has slowed, Atman said. She cited higher interest rates and a slowdown in housing turnover as reasons for reduced growth. - Sales-tax projections were affected by an unusual recent bump tied to BART railcar deliveries to Hayward; that temporary activity contributed roughly $4,000,000 to recent years’ receipts and is now winding down, Atman said. - The city’s ARPA funds and other one-time sources are largely exhausted; staff estimates a $4,000,000 reduction tied to ARPA and roughly $2,000,000 tied to reduced real property transfer activity relative to prior years. - Transient occupancy tax (TOT) is included as a placeholder in staff projections at about $3,500,000; Atman said council will receive a final recommendation from the Council Budget & Finance Committee (CBFC) and staff before adoption and the number can be adjusted.

On the expense side, about 80% of the city’s costs are salaries and benefits. The proposed budget includes the first full-year impact of recent memoranda of understanding and compensation adjustments, which account for much of the $11.2 million year-over-year increase in personnel costs noted by Atman. The agency’s running overtime total is roughly $14–15 million annually; Atman and staff said reducing fire overtime (described by Atman as a $7,000,000 running rate being budgeted at $3,500,000 for next year) is one piece of a broader overtime-review effort.

Staff tools already used and planned actions Staff described multiple measures already taken and under way: - Department-level reductions: a mostly department-driven set of cuts that staff reported netting roughly $480,000 (with the library exempted from some reductions and larger adjustments in police, fire and IT handled separately). - Vacancy savings: the proposed budget assumes a 5% vacancy-savings target (about $9,800,000); Atman warned that relying on vacancy savings is a last-resort lever and can mask costs when temporary help or overtime is used to fill essential gaps. - Program reviews and service-level reprioritization: staff recommended citywide program evaluations, with particular attention to police and fire operational models and the library, to identify sustainable structural changes rather than one-time cuts. Assistant City Manager Regina Youngblood said resident satisfaction survey results — which list housing cost, homelessness, crime and infrastructure maintenance as top concerns — should inform those prioritizations: “These insights don't prescribe specific actions, but they do reflect the kinds of services that residents most associate with effective government,” Youngblood said. - A planned fall revise: because the formal mid-year revise occurs months later, staff said it will return to council with a fall revise to present more developed options and give departments time to implement program-level changes. Atman said the city could present an updated number at that time; the budget is scheduled to be presented for adoption at the June 3 council meeting absent additional direction.

Potential revenue not in the base budget Council members asked about potential revenue that was not included in current projections. Economic development staff and Director Amiri discussed data center activity in the city’s industrial areas: one data center coming online has an estimated electricity load that could result in about $2,000,000 per year in utility user tax (UUT) revenue for the city under staff assumptions, but that revenue is not yet budgeted because projects remain in planning or early construction stages and timing is uncertain. City staff cautioned that data-center fill rates can take years and that infrastructure and permitting impacts must be managed.

Council reaction and next steps Councilmembers pressed staff for more short-term opportunities to reduce the gap before the June adoption and asked staff to return with actionable items. Several councilmembers urged that staff pursue insurance premium adjustments, overtime reductions and other near-term savings; the city attorney said prior discussions about coverage changes could yield about $1,000,000 in reduced premiums but that implementation timing is constrained by procurement and policy cycles. Staff said some items could be incorporated into memos or updates before June 3 but emphasized the fall revise for deeper programmatic changes.

Public comment and meeting context Public comment was limited to agenda items and included a single online speaker who supported confronting the fiscal reality. No formal votes were taken at the May 13 work session; the presentation and discussion will inform upcoming CBFC and council decisions, with the formal budget adoption scheduled for June 3 and a fall revise planned to refine structural changes.

What remains uncertain Staff estimates and proposed actions depend on multi-department work, external funding decisions (including county Measure W allocation discussions and future state/federal grant opportunities), and the pace at which program and operational changes can be implemented. Atman said that absent additional changes, using $12.6 million of reserves would reduce the city’s spendable general fund reserve from about 14% to roughly 8%, a level she described as below best practice.

Ending City staff said they will return with more granular proposals and regular updates; the council directed staff to continue developing program-level strategies and to present the fall revise with specific, prioritized options to reduce reliance on reserves.