(Bloomberg) -- Oakland, California, risks having to slash spending and stall capital projects if officials are unable to close the sale of the city’s soon-to-be defunct pro-sports arena in the next six weeks.
The Bay-Area city is facing a $117 million budget gap this fiscal year and a $175 million shortfall for the next. It’s relying on cash from the sale of the Oakland-Alameda County Coliseum, where Major League Baseball’s Athletics are playing their final season. Yet that deal is far from finalized.
To avoid cuts to city services, Oakland needs cash from the sale to come through by Sept. 1. There isn’t a written purchase and sale agreement and the African American Sports and Entertainment Group — which plans to buy the facility — hasn’t given the city a good faith deposit, according to city council member Janani Ramachandran, who voted against the plan to adjust Oakland’s budget with those funds.
“This was a great financial risk for the city to take,” Ramachandran said in an interview, citing concern that Oakland’s bond rating may be lowered. “It’s irresponsible to incorporate money from a deal that hasn’t happened yet.”
As pandemic stimulus ends and tax receipts come in lower than expected, cities across the US are searching for new sources of revenue in order to avoid cutting services or stymieing infrastructure plans. Los Angeles passed a budget plan earlier this year that cut 1,700 vacant positions and officials in Houston have warned of a fiscal cliff when federal funds run dry. Selling off assets is one option cities have to close funding gaps, but they’re often seen by investors as risky short-term solutions.
“Using an asset sale to plug a budget gap is clearly not sustainable, so the bigger question is how is the city’s leadership approaching the problem so that it’s not an ongoing problem,” said Patrick Luby, municipal strategist at CreditSights Inc.
Spokespeople for the mayor’s office didn’t respond to requests for comment. Neither did representatives for the African American Sports and Entertainment Group.
The Oakland City Council voted on July 2 to pass a $2.2 billion mid-cycle budget adjustment that relies on cash from the city’s 50% share of the stadium to fund essential services like police and fire department operations. The planned transaction is projected to make the city at least $105 million, though final terms are still being negotiated.
The other half of the Coliseum is owned by the Oakland A’s, which is also in talks with the AASEG. The plan would allow the company to redevelop the stadium site with a $5 billion project including new sports facilities, entertainment venues, a hotel and affordable housing.
“Closing a budget gap with sale proceeds isn’t inherently bad as long as the city has a Plan B if the sale doesn’t go through, and a Plan C on how to close next year’s budget gap if revenues don’t recover,” said Dora Lee, director of research for Belle Haven Investments.
If the Coliseum sale is canceled or delayed a “contingency” budget with $63 million of cuts to city services, including public safety, will be implemented.
Oakland has dabbled in marketing its stakes in sports stadiums before. City officials factored in the sale of the National Football League’s Raiders former training facility to help balance last year’s $360 million budget deficit. The auction initially received no buyers. When it did sell months later — the city’s share came in lower than expected.
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