By Steven Tavares.

Hayward City Manager Kelly McAdoo didn’t want the City Council to ask many questions Tuesday night after they learned about the fiscal health of the city. Save it for when the council meets for an in-depth discussion on May 20, she urged. But, all the council needed to know was one revealing fact: Hayward’s budget deficit for the next fiscal year is $10.4 million.

McAdoo’s $157 million general fund budget projections delivered some further sobering news, which includes more than $108 million in unfunded liabilities related to retirement benefits and the specter of Hayward’s general fund running the risk of depletion in three years. And while increases in property tax revenues alleviated some pressure on the city budget, sales tax revenues are estimated to be flat in comparison to a year ago, said McAdoo.

“While the City has taken significant steps towards attaining fiscal sustainability over the last five years, much work remains and we continue to struggle with a structural budget gap driven by increasing costs of operations, primarily relating to the rising costs of labor,” McAdoo wrote in the budget message to the council.

During Tuesday night’s limited discussion, McAdoo labeled it a “status quo budget,” and indicated the $10.4 million funding gap would be filled with general fund money. That is, unless the the City Council, through a series of pubic budget discussions over then two months, chooses to make cuts, she added.

Hayward’s general fund, however, would be whittled down to just $11.2 million, if used to reconcile the 2018 budget gap. In addition, the general fund would fall to a projected 10 percent of its overall expenditures, which is far below the 20 percent benchmark within the City Council’s policy. Last year, the council allocated $4.4 million to close the previous deficit. “This is incredibly concerning to staff,” said a member of the city staff.

A combination of rising public employee benefit costs and the decision by CalPERS earlier this year to lower its discount fund to seven percent is further squeezing the city’s treasury, said McAdoo. Total retirement costs are projected to increase by 11 percent, and it could get worse. “Unfortunately, CalPERS is likely not done with these types of changes that will make it harder for cities, including Hayward, to fund ongoing operations and services to the communities we serve,” she said. The proposed budget, though, recommends making only a $3.9 million minimum contribution to CalPERS next year.

The city’s 657-member workforce, though, is proposed to increase by more than six full-time equivalent employees. The additions are primarily related to staffing the new 21st Century Library and Community Learning Center, due to open downtown near Hayward City Hall.

Hayward Councilmember Al Mendall said he was “bummed” by the prospects of dealing with another year of double-digit deficits. “I thought this was behind us,” he said, although he also expressed optimism that the council experience in budget matters will again balance the budget equitably.

Overall, the City Council appeared to take the budget projection in stride. Hayward Councilmember Mark Salinas reiterated comments made by McAdoo crediting city employee groups, many of which agreed to bear more of the costs of their benefits over the years. “The budget is in good shape because of our employees,” he said.

A special budget work session is scheduled for Saturday morning, May 20, at City Hall. Hayward city departments will make budget presentations and the council may begin offering its solutions for balancing the budget before the state deadline of June 30.

Hayward Councilmember Francisco Zermeno quipped that he hopes the work session includes a “nice lunch.” Mayor Barbara Halliday jokingly shot back, “I don’t think we can afford it.”