Almost exactly a year ago the city of Oakland accidentally published a report which stated just how dire the city's financial situation was.
The report, which had the signatures of the city’s top officials on it, also warned that “Fecklessness and failure to take dramatic and immediate steps to reduce expenditures will almost certainly result in insolvency.”
Almost as soon as that report started circulating, it was pulled down and replaced with a new report which didn't have the same dramatic language about insolvency and bankruptcy.
As I wrote at the time, the problem facing Oakland was crime. The city had unwisely decided to defund the police in 2021. That led to an immediate spike in crime and the city was forced to pay millions for police overtime.
All of that is preface to a story published today which suggests some sort of bankruptcy is once again looking likely in Oakland. This is another case of get woke, go broke. This time it involves a coal producer in Kentucky which has sued the city and won. It's likely the city is going to be forced to pay hundreds of millions of dollars.
We'll get to the cost of this in a moment but let's start from the beginning, which is back in 2013.
At the foot of the Bay Bridge, far below where cars zoom along the white ribbon rising over the water toward San Francisco, the Oakland Army Base once sent supplies and troops overseas during World War II, the Korean War and the Vietnam War. After the base was decommissioned in 1999, the city of Oakland received some of the land.
In 2013, the city gave permission to a local developer, Phil Tagami, to build a $250 million shipping terminal on that land. He then signed a lease with a company that planned to ship as many as 12 million tons of coal per year, according to court documents. It was set to become the largest coal export facility on the West Coast, opening up Asian markets as demand dipped domestically.
But in 2015, a Utah newspaper called the Richfield Reaper wrote a story revealing that Oakland was about to become a conduit for coal heading to Asia. California environmentalists caught wind of it and began demanding the city reverse course.
Local activists and environmental groups, including the Sierra Club and Earthjustice, lobbied the Oakland City Council to stop coal from entering the city. Hundreds of “No Coal” demonstrators showed up to City Council meetings...
City officials, however, found themselves in a pickle. They had already approved a contract with Mr. Tagami to export bulk commodities from the terminal — and nowhere did it say coal was prohibited.
Mayor Libby Schaff tried to persuade Tagami, the developer, not to allow coal to be transported from the shipping terminal. He refused. So in 2016 the city council did something really dumb. It unanimously passed a rule banning the transport of coal through the city.
“Oakland cannot afford to ignore the scientific evidence that clearly show the harmful effects and risk associated with coal,” said Dan Kalb, a City Council member who proposed the ban along with the mayor, Libby Schaaf. “With this new law, we’re taking the steps needed to protect our community, our workers and our planet.”
So, to sum up, the city made a deal to build and export terminal with Mr. Tagami and then undermined that contract three years later by disallowing him from shipping coal from that terminal. He sued and won. In fact he's now won twice, once in 2018 and once in 2023. Two months ago, the city's final appeals were exhausted. They have lost and Mr. Tagami will be building his shipping terminal.
But here's where things get really bad for Oakland. The long delay has caused major damage to the coal producer in Kentucky which was contracted to ship its coal through the new terminal. That company is now in bankruptcy. A bankruptcy judge has decided this is largely Oakland's fault.
Last month, Bankruptcy Judge Joan A. Lloyd of the Western District of Kentucky ruled that Oakland’s “improper and unjustified conduct significantly disrupted and burdened” the Kentucky-based company that had been contracted to ship coal out of Oakland’s terminal, forcing it into bankruptcy.
The judge suggested the damages were between $654 million, before interest — what the coal company is pushing for — and $230 million, what Oakland’s own expert estimated the coal company had lost.
The exact amount hasn't been determined yet but it looks very likely that Oakland is going to be on the hook for several hundred million dollars, maybe even half a billion or more. Needless to say, the city doesn't have this money. It was on the verge of insolvency a year ago when it was looking at a budget shortfall just shy of $100 million. So there's no possible way it can pay this judgment (which again isn't final yet). If the judgment happens, Oakland will almost certainly have to declare bankruptcy itself.
As for the progressive geniuses that put the city in this position, Libby Schaff is no longer Mayor of Oakland and Dan Kalb is no longer on the city council. He shrugged it off as a mistake, saying he really thought the city would win in court. "Sometimes you think one thing and it turns out the other way in court," he said.
If the city goes bankrupt, they should set up a plaque with the names of all the city council members who voted for this disaster. But of course that won't happen. The best part of working in government is that no one is ever held responsible for abject failure.
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