☆ Mark Moses: Saving a city should take years, but it’s worth the wait (3/3)
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Rather than limp along, hike taxes, and sell off assets to survive, cities like Oakland and San Jose should prioritize the needs of their residents—and their long-term financial health. So says Mark Moses, author of The Municipal Financial Crisis, who calls for cities to begin a years-long unwinding of costly services, regulations, and labor agreements. An Opp Now exclusive Q&A.
Opportunity Now: What’s at stake if cities don’t learn to spend wisely?
Mark Moses: They’ll limp along from year to year, not really holding a long-term perspective; you’ll sell assets just to get by or dip into one-time funds, operating in effectively a survival mode—
ON: Like Oakland selling the Coliseum.
MM: Exactly, because they ostensibly cut back on some of the fire operations and made other cuts, but everyone has their eye on that first check from the Coliseum sale. That first bit of cash is going to replenish those cuts. But city leaders have done nothing to deal with their budget structurally. The city will be in the same place when that money runs dry.
ON: That sounds more like financial reacting than financial planning.
MM: Yes, and a lot of the so-called solutions just aren’t going to work. In Chapter 3 of my book, I talk about fads like zero-based budgeting. But there’s no real "zero" to begin with. Labor agreements are already in place, dictating costs, staffing levels, and how the work gets done. By the time you’re building the budget, 75–80% of the general fund is already spoken for, and you’re just left accounting for existing commitments.
At that point, budgeting isn’t planning—it’s juggling. If there’s a deficit, the whole process becomes about squeezing everything into the numbers rather than making meaningful changes. It’s the wrong approach if you’re trying to manage effectively.
ON: So the right approach would be to go after 75–80% of a city’s obligations? How would you even begin to do that?
MM: You’ve got to be realistic about time frames. Like, as much as I think zoning is a bad thing, I wouldn’t recommend getting rid of it tomorrow and pulling the rug out from under people who have relied on it. But I do think it’s viable to sunset these regulations. For example, some local government impositions could be phased out on a 10-year time frame, or a seven-year time frame. And no, maybe a municipality doesn’t abandon wastewater treatment next year, but its leaders could put everyone on notice that, hey, in 12 years or 15 years, we’re going to be out of this business.
Now, what have you done? You’ve provided an incentive for private markets to invest in being the next solution to that issue locally. And no, you don’t pull the rug out on charitable activities; but you say, hey, we’re phasing this activity out over five years, and we’re not going to be picking winners and losers in the nonprofit world. Everyone then has time to adjust and prepare for the day when subsidies going to nonprofits and the crowding out of private charitable activities is just not a city function anymore.
ON: What are cities you know of that are budgeting wisely, without skimping on the services they need to provide?
MM: The City of Walnut Creek does not offer retiree medical benefits to its employees. And guess what? They have zero liability for such benefits. You just don’t hear about these things; nobody’s really crowing about it or making a big deal about it—I only found out because I did some consulting work for them. And yet, funding retiree medical liabilities is a big problem for a lot of cities and school districts.
The argument could be made that to be competitive, you’ve got to offer this benefit. But somehow Walnut Creek was able to pre-empt the problem of retiree medical benefits.
ON: But what if most cities still see a need to be competitive and offer this benefit?
MM: Well, it doesn’t have to be left unfunded. I remember back in the early 2000s, cities and special districts got a wake-up call about OPEB liabilities. That stands for Other Post-Employment Benefits, like retiree medical. Most hadn’t set aside money and were hit with massive unfunded liabilities that they were required to report on their financial statements.
But there were a few smaller cities and districts where someone, way back when the benefit was offered, had the foresight to say, "We should set aside money as people earn this benefit." There wasn’t even an official way to do it then—just special reserve funds or something similar—but when those liabilities were finally measured and reported, such agencies had a significant amount set aside. Instead of panicking over a $40 million liability, they could say, "We’ve got $30 million set aside already." That kind of preparation made all the difference.
ON: You don’t often hear about “mostly-funded liabilities."
MM: The cities that handled this well weren’t big or flashy. They were often smaller, less political places that weren’t constantly being pushed to expand their scope of activity. They made this discipline part of their culture—"Why risk sticker shock later when we can plan for it now?" Bigger cities, like San Jose, often don’t take the same approach. They see reserves as fair game for spending rather than a necessary safeguard for future liabilities.
ON: What about saving money on operations?
MM: When I worked for the city of Fremont from 1998–2003, the council avoided politicizing spending decisions. They were getting hit up hard by a local bank to move city services there—councilmembers ran into the bank’s representatives everywhere because the bank was sponsoring fireworks and all kinds of community events. But the bank didn’t have the services the city’s treasurer needed.
Some councils would have given in to the political pressure, but Fremont’s council showed the discipline to leave the banking decision to staff.
Councilmembers avoided getting into such operational decisions because they understood that there’s no end to that. If it doesn’t work out, what’s your exit strategy? Do you go back to a local, non-performing vendor and say, "Hey, we’re pulling the plug"? That’s what happens when councils politicize operational decisions. Fremont’s council knew their place—they focused on oversight and left operations to the staff, which made the organization more stable and effective.
ON: What would you say to a city leader who wants to correct course?
MM: You’ve got to start with the mission. What is the city there to do? You can’t build a solid budget or organization if you don’t know what the mission is. Too often, cities try to take on everything, but they need to focus on the basics that are appropriate for a city: protecting rights, providing security, maintaining infrastructure. You can’t do everything and expect to do it well.
Mark Moses, senior fellow at California Policy Center, is author of The Municipal Financial Crisis.
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