Council faces tough decisions on unfunded liabilities

Mayor Bates: “People will need to start contributing.”

The Berkeley City Council special session on the $310 million — or higher — unfunded liability on promised employee benefits revealed the difficult choices faced by the city.

A presentation by budget manager Teresa Berkeley-Simmons made the root of the problem clear. The California Public Employee Retirement System (Calpers) assumed annual investment returns of 7.75%. The crash of the Great Recession in 2008 meant that returns in the fiscal year ending June 30, 2009 were negative 24%, producing an annual loss against assumptions of 31.75%. For Berkeley’s city employees, that has produced investment losses of $200 million.

“We can’t grow our way out of this,” Berkeley-Simmons said.

“Even if Calpers gets 7.75% forever now, they have lost $200 million on which we’ll never get 7.75%,” explained City Auditor Ann-Marie Hogan.

City Manager Phil Kamlarz said the money to close the gap has to come from either increased contributions or a reduction in cash available for city services, or some combination of the two. Long term, the gap can be closed by reduced benefits for new employees, but that does little in the short and medium term.

“Rather than cut services, people are asking employees to contribute more,” said Mayor Tom Bates. “That’s the path we have to go down. People will need to start contributing more. It’s unfortunate, but they’re lucky to have a job.”

District 7 Council Member Kriss Worthington cautioned that it was important not to perpetuate falsehoods about public sector workers. “There’s not a dramatic difference between private and public employees,” Worthington said. “We need to smash that myth and get the facts into people’s hands.”

District 5 Council Member Laurie Capitelli said that the scale of the problem meant that there was no quick fix. “We didn’t get into this problem overnight, and we’re not going to get out of it overnight,” he said. “I’d like to set a five-year goal and a ten-year goal. I think our legislature has been guilty of kicking the can down the road, and I don’t want that and I don’t think any of my colleagues want that as our legacy — that we somehow manage through trick or treat to kick the can down the road.”

The immediate opportunity for the city to begin to close the gap comes at the end of the month, when negotiations begin on the police contracts. Some of the largest unfunded liabilities are with the police. Capitelli pointed out that according to Hogan’s figures the police medical benefit is 87% unfunded. According to Hogan, the generally accepted prudent standard is for benefits to be at most 15% unfunded.

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  • r wright

    Maybe the retirement age for police with full pensions should be raised as a start. People are living much longer than they were a few decades and retiring at 50 or 55 does not fit the reality of longer life expectancy.
    Despite Kriss’ assertion, I feel there IS a dramatic difference in the pay, perks and benefits between Berkeley city employees and many Berkeley residents and homeowners who fund Berkeley city employees. City employees are working FOR the residents, not the other way around…… That goes for the council too’ they are in office to SERVE the residents, not city employees.
    Why not discontinue Cesar Chavez as a paid holiday for city workers, instead let’s call it Cesar Chavez Remembrance Day and city can acknowledge Chavez’ contributions in other ways?
    Quit giving city employees more days off without pay as a cowardly way to “fix” the budget, get to the real meat of the matter, but that would require the council to do their job.

  • David L.

    Why did it take so many years for the Auditor to discover this issue and bring it to the public’s attention? Are there no generally accepted accounting standards for cities to quantify pension liabilities? The City of Berkeley (and the school district) should invest in hiring outside accountants to conduct regular audits and certify their accuracy. At least then we would have someone to sue for “accidentally” missing a few hundred million in liabilities. If this was a public company investors would sue for fraudulent failure to disclose material information. Where is the accountability at the City of Berkeley for the failure to timely account for such a large liability? Are there other items like this that never made it into the financial records? Will there be any structural reform to prevent a repeat of this type of accounting disaster in the future?

  • Lorraine

    Maybe Phil Kamlarz shouldn’t be making over $230,000 a year to run a relatively small city. The Governor of California only makes $212,000. And when Phil Kamlarz retires he will get over his full salary for the rest of his life. Overpaid city officials with bloated pesions is the problem.

    See this article detailing what Phil Kamlarz alone is costing the City of Berkeley:

  • David L: Perhaps I should have explained it more clearly.

    Before the market crash in 2008-2009, Berkeley had adequate cover of over 85% on its liabilities. When the crash produced a $200 million investment loss, those liabilities no longer had adequate cover.

    The problem lies in Calpers foolhardy assumption of 7.75% investment returns in perpetuity. That set the basis for Berkeley contributions, and it has been exposed as wildly overoptimistic. Perhaps Berkeley should have cried wolf, along with other municipalities, but many institutions shared such delusions.

  • Ben

    Did the City Counsel vote on whether to extend transition-related care to transgender city employees? If so, what was the outcome? Thanks.

  • Ben: the vote will be on February 15. See our news brief update here:

  • David L.

    Thanks for the details Lance.

    Perhaps the City of Berkeley should consider making our own public retirement system based instead on conservative, realistic, and relatively secure rates of return provided by United States Government securities, which currently yield 3.37% on a 10 year note, or 4.45% on a 30 year bond.

    5.95% is available on municipal bonds. That is only 1.55% less than the CALPERS 7.5% assumption. – [The municipal bonds pay more because of the risk associated with the ability of a municipality to pay. Ironically, it may be too risky for the City of Berkeley in other municipalities.]

    A stable conservative independent retirement system for the City of Berkeley could be a realistic alternative that could offer lower risk, lower costs, local control, and more transparency.

    Why gamble with CALPERS? Given CALPERS’ performance, we should consider looking elsewhere for better pension services.

    CALPERS is being investigated for violating federal law by failing to disclose risks and conflicts of interest.

  • Chris

    Public employees should have to contribute some, or more, to their pension and medical plans. Everyone should share in contributing to make up this shortfall instead of relying on service cuts and increased taxes.

  • Jarad

    I agree with Chris 100%. City workers need to sacrifice the way that those of us in the private sector have during this bad economic environment. Asking homeowners to pay for yet another special property tax assessment is completely unacceptable and so is cutting basic services such as BPD or BFD.

    Time for Phil Kamlarz and the rest of the city to get back to the basics, tighten that budgetary belt and and swallow the bitter fiscal austerity pill that everyone employed outside of city government had to swallow all the way back in the first 2 quarters of 2009.

  • G

    Public employees should all be fired.

    let’s move to Independent Contractors

  • Bill


    Whether you fire every public employee or not the legal obligation for retirement benefits remains. Now I suppose it would give some satisfaction, after the lawsuits, to have done this but I suspect it would be less than satisfactory in the end and maybe not as cost effective for all employee duties.

  • Mathew Parker

    So now the arsonists who set the city on fire have to put the fire out. And they are going to crow about some minimal reductions.
    Meanwhile Sir Bates will be drinking Pinot Grigio in the hills on a big fat and undeserved pension because he pf course, will help keep the ponzi scheme going long enough to “get” his.
    – Trash could go to Waste Management
    – Park services could be private contractors
    – traffic tickets could be privatized
    – police could be disbanded and the money for law enforcement can go to the Sheriff- a legitimate voted position.

    The above and more employees would be transferred to the private sector and off our books. Its simple. SF has private waste disposal and its no cheaper or more expensive than the “heroes” who work here

  • Name Withheld

    “There’s not a dramatic difference between private and public employees,” Worthington said. “We need to smash that myth and get the facts into people’s hands.”

    Utter bull $h!t.
    That Worthington was able to say something that obviously false with a straight face shows just how out of touch with reality many of the folks on the Berkeley City Council are.

  • OWkrender

    PERS’ unfunded liabilities are primarily due to the fact that a decade ago, in the throes of the”irrational exhuberance” of the tech bubble, PERS excused employers from paying in for 4 or 5 years–in in one year even rebated money to employers. The money saved at that time was not given to employees; it was spent on other governmental functions. Why should employees be the only ones to pay now?

    An arrangement for the employer to pay all or part of the employees’ contribution was negotiated in lieu of pay, with tax advantages for the employer. What is the justification to cut employees pay? How would that be different from levying a tax on narrowly focused group?

    It’s funny that the same people who rail against public employee and propose summarily reducing their pay often are the same who recently opposed restoring the tax rates of billionaires.

  • Jim

    During the recent election, Kriss Worthington made a big deal of his support for the employees of the City of Berkeley. Is he really blind to the advantages and benefits that a City employee has over someone doing a similar job in the private sector? Or is he just trying to keep his job in perpetuity?

  • Name Withheld


    I don’t see how someone could be blind to the generous pensions that many CoB employees get, considering how outrageously large they are.

    If Worthington thinks those of us in the private sector are still getting pensions like that he’s off his gourd.

  • laura menard

    Reader Commentary in the Planet
    By Barbara Gilbert
    Thursday January 20, 2011

    Sex change surgery is beside the point when examining Berkeley’s budget and its employee health care program.

    The City has a Rolls-Royce plan that would astound and create envy in 99.9% of Americans—rich, poor or middle class. For the basic plan, employees pay nothing and receive these benefits tax-free. In some cases, employees actually receive cash in lieu of coverage.

    I refer interested and concerned readers to the City of Berkeley Consent Calendar Item #5 on November 16, 2010.

    For families of active employees, the City pays up to the Kaiser rate of $16,800 annually. For families of pre-Medicare retirees, the City pays $28,800 annually. For retiree families, the City pays $18,000 annually. The payments for single and two-party households are of course lower, but still astronomical. Beneficiaries who choose pricier Health Net coverage plans pay the difference out of pocket. For retirees, the City has paid, since 1988, premium increases of up to 4.5% annually (so for a 1988 retiree, the City’s premium cost has about doubled).

    The scope of employee Kaiser coverage is apparently limitless. For active employees and pre-Medicare retirees, there is $0 co-pay for office visits and $5 RX co-pay. For post-retirees the office visit co-pay rises to $5 and the RX co-pay stays at $5.

    My take on health care reform, shared by most other commentators, is that reasonable co-pays discourage abuse of the system by providers and patients, and of course promote sensible cost containment.

    We also know that physical fitness absolutely promotes good health. Berkeley employees receive free gym membership at the Downtown YMCA at a cost of almost $300,000 annually. Does the City even know how many employees use this valuable benefit? To my knowledge, there has been no serious effort to encourage or require at-risk employees to use this benefit.

    Then there is the cash-out issue. The point of health insurance is to address health issues, not to enrich employees. I briefly worked for the City about ten years ago and was amazed to learn that I could take my health benefits in cash since I was insured through my then-husband. I cannot recall whether this cash was tax-free but it may well have been. This wasteful policy is apparently still operative so that some number of otherwise-insured beneficiaries are literally cashing-in. Can the City provide this number and the dollar cost? Perhaps this “free” money should be used for borderline coverage in elective surgery and mental health.

    I really wish that the public and press would not get distracted by push-button issues such as sex-change surgeries, but would instead do the harder work of reading, thinking, and analysis of the very serious structural issues facing our communities.

  • Ann Coulter

    maybe  berkeley  should defund  the  nanny  give  away  programs and  find out  how  many  illegal alien children are  attending berkeley  schools ………….and  the  beat  goes  on 

  • Ann Coulter

    further  proof that liberal progressives  cant  even run  a silly  little  city  like  bezerkeley  let  along  its  broke  counterpart  detroit, philadelphia, los  angelees  etc ,,,another  sad  failure  

  • Ann Coulter

    lets  not  pay  for  illegal alien children  who attend  your  schools  wake  up berkeley 

  • Ann Coulter

    it  does  cover hernia  operations  for  my  labrador  but  I believe  the transgender thing  went  down in flames 

  • Ann Coulter

    the only  union workers  should  be  police  and  fire..outsource  the  rest or  u will go  broke