Budget: Spending cuts needed to avoid shortfall

Calpers

Employer rates for CalPERS continue to increase

Berkeley’s General Fund projections include a deficit of more than $5 million over the next two years, requiring city leaders to take a tough look at its more cash-strapped departments to reign in costs.

To close the gap, the city’s budget manager has recommended recurring 2% General Fund reductions across the board for city departments. Departments will present their recommendations to the city manager and City Council in the coming months.

In a work session last Tuesday night, the city’s budget manager gave Berkeley City Council members a forecast for the next two years, and pointed to areas that may pose challenges going forward. (See a PDF of her presentation.)

Three more work sessions have been planned to allow council members, city staff and members of the public to learn more about, and weigh in on, city finances. Scroll to the bottom of this story to see the dates for upcoming public meetings on the budget.

Council members called the presentation, by budget manager Teresa Berkeley-Simmons, “sobering.”

Berkeley-Simmons, in her written report to the council, said General Fund revenues, despite improvements in some areas, cannot keep pace with rising costs. (See an interactive chart of the costs here.)

“While some revenues appear to be slowly returning to a more healthy growth rate, others are not performing as well as they have in the past,” she wrote. Property transfer taxes, for example, appear to be rebounding from a slump in the past few years, but “other revenue sources are not behaving similarly.”

Interest income, for one, is projected to decline, as prior long-term investments mature and current available investments “are at historically low rates” because of Federal Reserve policy, she wrote. In fiscal year 2010-2011, the city received $5.4 million in interest income; this dropped to $4.7 in FY 2012, and is projected to bring in only $3.2 million in FY 2014, then $2.8 million in FY 2015.

Reductions also are due to less revenue from the business license tax for medical marijuana dispensaries; these revenues are expected to continue to decline, according to Berkeley-Simmons’ report.

The number of parking tickets issued continues to decline, and “ultimately this revenue source will be less than initially projected,” she wrote.

In sum, Berkeley-Simmons said the city will need to focus on managing its spending and approaching revenue projections conservatively: “Just comparing the projected increase in transfer tax with the projected decrease in interest income for FY 2014, we see that those two revenue sources combined are effectively flat. Even with the modest increases projected in other areas such as sales tax, business license tax and utility users tax, revenues are not projected to outpace expenditure growth…”

The city is also reviewing the General Fund and special funds that do not cover their own costs, and thus drain city reserves over time, wrote Berkeley-Simmons. These include the General Fund, the Refuse Fund and the Parks Tax Fund. In fiscal year 2013-14, seven funds have been identified which, in total, are projected to create a nearly $7 million structural deficit. (See a breakdown of each of these funds here, from Tuesday night’s staff report.)

To address these deficits, Berkeley-Simmons suggests a range of ideas, from a new tax on the ballot in November 2014 to help with the Parks Tax Fund to raising the fee (from $10 to $15) for parking at the Marina for the July Fourth fireworks display and the Kite Festival. That would bring in another $15,000 per year, she estimated in her report.

Other tough decisions remain ahead. The city’s Department of Health, Housing and Community Services has a projected shortfall of 8.2% in federal funding in FY 2014. The Public Health and Mental Health Services program also will face cuts. (For a more in-depth discussion on what may be in store for the department, attend a work session with the city on Feb. 19.)

Aside from revenues, costs continue to increase, wrote Berkeley-Simmons, for city pensions, health care and other employee expenses. The baseline budget for the next fiscal year anticipates a 9% increase in medical premium costs, for example.

The city also will take a closer look at unfunded liabilities on Feb. 19. That report, which was requested by council in May 2012, will look at the preliminary cost estimates of capital improvements and major maintenance for city facilities in the next five years; assess current unfunded liabilities for streets; and include a summary of employee costs and an analysis of how the city could reach an 80% funded level for CalPERS pension plans over a 10-year versus a 15-year horizon.

Councilman Gordon Wozniak noted that the city is very good at managing year-to-year expenses, but might be able to improve its long-term planning goals for city finances. He added, however, that he isn’t sure “what the solution is.”

Councilman Laurie Capitelli said the city is going to have to look closely at its programs and that, eventually, it may make more sense to eliminate certain programs altogether rather than asking everyone to shave off small percentages year after year.

Councilman Darryl Moore concurred, calling the smaller cuts “torturous.”

“I’d rather eliminate an ineffective program,” he said. “I know it’s tough. I know no one on this dias wants to do that. But I just think that’s a smarter, more effective way than crippling other programs that we have going.”

Councilman Jesse Arreguín said it would be a challenge to come up with the proper criteria to determine which programs are ineffective.

“We need to consider all the factors when we make these decisions, including who are we serving,” he said.

The total projected revenue for the city in fiscal year 2013-14 is $150.4 million, with projected expenses of $153.4 million. The current projects assume no additional federal or state cuts; no funding for new programs; no additional funding for capital improvements; no new decreases in revenue; and no cost-of-living salary increases.

Mark your calendars

A session on Feb. 19 will focus on unfunded liabilities; a mid-year update for the current fiscal year; and the Housing and Community Services Division. On March 5, the focus will be on the Parks, Recreation & Waterfront Department. Then, on March 19, the Public Works department, along with the capital improvement program for the parks department, will be explored.

On May 7, a presentation of the proposed budgets for the next two years is scheduled, followed by two public hearings (May 21 and a date to be determined). June 4 brings the budget recommendations from the council, and the budget is set to be adopted on June 25.

Related:
Berkeley General Fund revenues may fall short in 2012-13 [12.12.12]
Moody’s places Berkeley bonds under review
 [10.11.12]
Unfunded liabilities prompt initiative, Council resolution [05.15.12]
Berkeley faces difficult path to funding pension liabilities [02.16.12]
Berkeley City Manager Phil Kamlarz: The exit interview [11.30.11]
City workers make sacrifices, help alleviate budget crisis [06.16.11]
Layoffs, fee increases proposed for 2012 budget [05.03.11]
Berkeley city salaries track neighbors closely [03.16.11]
City budget faces $1.8 million mid-year shortfall [02.15.11]
Council faces tough decisions on unfunded liabilities [01.19.11]
Berkeley auditor report shows $310m benefit debt [01.10.11]
Some Berkeley city offices to close two days a month [06.23.10]
Mayor Bates on tackling city’s worst deficit in years [06.17.10]

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  • BerkeleyGirl

    Thats the best response you can come up with?

    His primary argument is about cutting response capabilities, concessions to salary (5% give back, where did you come up with that? Is that what would satisfy you?) are not even mentioned and no where did he state that he (personally) isn’t willing to make concessions. I read the comment and its clear he was attempting to frame the discussion by ensuring all your emotional driven negative content is countered with some perspective and fact.

    You are nothing more than an agitator sir. A completely biast one at that, unable or unwilling to accept alternative perspectives, who continually drafts disrespectful, somewhat unintelligent, and inflammatory comments.

  • http://www.caviarcommunism.com/ West Bezerkeley

    I feel you’re putting words in my mouth regarding the difficulty of policing in Berkeley.

    Definitely not my intent

    looking at the historic problems that have faced Richmond and Oakland, I would be more likely to want to work in Berkeley.

    I can understand that, particularly in if you had to choose between BPD and OPD.

    You see the need to offer a higher salary to get the best recruits. I am not so sure.

    Now that is an interesting line of discussion. You may have put your finger on something that deserves a closer look.

  • David

    Stop the special interest money going to all candidates, from all sources, including corporations, and then the playing field will be fair. Maybe it could become about the issues of the day, and the values and morals of the candidate…..wow.

    PAC expenses are public record, rightfully so. But statements to the effect of “As they say, follow the money” are naive. One can only assume that it is then also your opinion that the taxpayer is somehow wronged each time a public employee spends or donates a portion of their salary to establishments, services or organizations that conflict with your personal values, religious beliefs, sexual orientation or morals.

    Hey, each time someone buys a home, a car or almost any other product or service, eventually a portion of that money is also used to influence politics in some way. Thats the way our system is set up.

    Currently, organized labor’s political contributions are essential to maintaining a group of elected leaders who are responsible to the needs of the middle class. They are involved as a reaction to the opposing forces who would cause us to repeat periods in American history that should remain just that, history.

    Just sayin….

  • The Sharkey

    Having views that differ from yours doesn’t make me an “agitator” (whatever that means) it just means we don’t agree yet. If you’ll read through the comments, I’m not the only one who thinks our firefighters might be a touch overpaid, and that cutting our fire department a little bit while increasing the number of ambulances might give us the same (or very similar) results while saving a bit of cash.

    Some of what he said is useful. I think I acknowledged that. But where he says we should blame “corporate America” and Prop 13, I think we should look at other issues that we can actually take action on at a local level. I’d love to see some major crackdowns on corporations but that ain’t gonna happen as long as Americans keep voting within a busted two-party system, and while Prop 13 has some problems I think we’d be better off amending it so that it only applies to primary residences rather than scrapping it.

    But that’s all the stuff of dreams and there’s nothing we can do about it here in Berkeley, and we certainly can’t plan our budget around the pipe dream that the Republican and Democratic parties will stop kissing corporate behind and stick up for their constituents.

  • Reader

    Do I understand from this post that you’re a city employee? If so, what do you do?

  • EBGuy

    Take that up with the Supreme Court. In the mean time, all ordinary citizens have to protect themselves with is sunshine.

    BTW, I do appreciate your contributions on this thread. Unions represent the workers’ interests and it’s good to hear from the perspective of those with expertise in the field. However, I am under no illusion that the unions’ interest and the public interest will always overlap. Public safety workers are millionaires when they retire. Sometimes I wonder if they realize that.

  • http://www.caviarcommunism.com/ West Bezerkeley

    That’s an unequivocal no. I’ve stated many times on Bside what I do. I’ll let you do the homework.

  • Bishop George Berkeley

    You were SOOOO close!!

    Yes and yay to every single thing you said, right up until you completely contradicted yourself: “Think twice about cutting emergency responders though…”

    If you are serious about “getting a backbone,” “making cuts,” “changing contracts,” “buzz saws,” and above all “difficult decisions” — then we absolutely MUST deal with fire and police, because (1) that IS the most difficult stuff, and (2) police/fire contract & pension obligations are precisely where we are bleeding the most money.

    If we are ever going to be serious about our unfunded liabilities, then nothing can be off the table.

  • http://www.caviarcommunism.com/ West Bezerkeley

    There’s no contradiction. I’m saying that there need to be layoffs, but don’t lay off emergency responders.

    I’ve not touched upon the unfunded pension issue, which is something that is so egregious I should have mentioned, but how long should a single post be here?

    Further down in this discussion I said if salary cuts should be on the table & part of this process & I acknowledged “It’s a bitter pill, but I swallowed it in 2001/2 and again in 2008/9, so I don’t have a lot of sympathy for government workers that are immune from the pain that the private sector goes through during recessions.”

    Getting back to the issue of layoffs for a moment, looking at this from a business perspective, you have to cut in areas that are adding the least value to the long-term operation of the organization. I contend that fire and police services are essential. If either one is starved for personnel or money, you end up like Washington D.C. in the era of Marion Barry.

    Berkeley has enough problems without walking down that road.

  • Bishop George Berkeley

    Actually, second (and third) careers are a reality for many in law enforcement precisely because of their amazing retirement packages. Here’s a scenario I’ve seen often: work for agency #1. Aggressively work overtime, and stockpile vacation/sick leave in order to spike final salary. Retire young at age 50 with pension of 3% of “final” salary x yrs worked. Turn around and immediately go to work for agency #2 (another city, or the county) and begin accruing pension #2. Once it vests, retire again and laugh your way to your boat in the delta. Or, return to work for agency #1 on part-time basis and “double dip.”

    By now, I hope everyone understands that base salary isn’t the real issue. It’s the abuse of overtime, the spiking, the ability to stockpile vacation/sick leave without limitation until you retire and “cash out” at your highest salary, the pension at age 50 — with current life expectency, many Berkeley police/fire will draw their pensions for longer than they ever worked for the city, at the highest rate of their career.

    A few years ago, the Chron published the wages of all city and county workers making >$100K in wages. You can still find the data on the sfgate website. The pattern was the same everywhere: the highest wage earners were ordinary cops, sheriff’s deputies (usually working the jail), and firefighters amassing incredible amounts of overtime. How easy is it? Try this: agree to all vacation requests made by jail employees. Holy crap, we have a staffing shortage! What can we do? Hire back everyone who was supposed to be off that day, at overtime!

    Will any of this ever be touched? The answer lies in those glossy mailers paid for by the firefighters union in every election, backing individual candidates.

  • Zelda Bronstein

    In November 2010, Berkeley City Auditor Ann Marie Hogan presented the council with a succinct report, “Employee Benefits: Tough Decisions Ahead,” that should be required reading for every Berkeley citizen. Unfortunately, most of the tough decisions are still ahead, which is to say, the council has continued to kick them down the road.

    Link: http://www.ci.berkeley.ca.us/uploadedFiles/Clerk/Level_3_-_City_Council/2010/11Nov/2010-11-16_Item_13_Employee_Benefits_Tough_Decisions_Ahead-Auditor.pdf

  • PragmaticProgressive

    How much of this should be done by the city auditor? And if the answer is “not nearly enough,” why do we have her on the payroll?

  • PragmaticProgressive

    Since we own the firehouses, there’s really nothing preventing us from contracting with a private paramedic firm and letting them operate ambulances from those locations. Then you fire fighters could go on fighting fires and there’d be no need to waste your time and talent on medical calls. Citizens would enjoy rapid response times — perhaps even faster, since an ambulance can move more quickly than a fire engine around windy streets.

    You’d just have to find a way to coexist with the paramedics and since we’re all in this together, I’m sure your dedication to the public good would help you accomplish that goal.

  • PragmaticProgressive

    It’s illegal in CA to take away earned vacation time, but you can stop accruing new time until the balance drops.

  • Boalted

    PragmaticProgressive, that is an excellent question with a short answer: None. Our city auditor focuses almost exclusively on financial controls and reporting.

    Performance and efficiency audits are comparative analyses of a city’s operations against alternatives and recognized best practices found elsewhere.

    For example, our auditor could tell you to the dime what it cost to roll a a five member crew on a 20 ton fire engine to a slip and fall at Walgreens.

    A Performance and efficiency audit would tell you which cities contract out EMT services, at what cost and with what effectiveness…then spread the numbers, including all the city payroll overhead, capital equipment etc. and present that to the council for review.

    They’d do the same type of analysis with garbage collection, plus assess specific practices, such as closing the City offices on Fridays and a review of staffing levels and salaries throughout the city departments.

    The first sound of real change will be a council member advocating an outside performance and efficiency audit.

  • Bishop George Berkeley

    Nope.

  • Bishop George Berkeley

    Look one city over, to Oakland believe-it-or-not, to see what a real auditor looks like. I’d increase spending to get Courtney Ruby over here.

  • Bishop George Berkeley

    It doesn’t have to be that way, though, does it? The auditor COULD do all sorts of things, and as an elected official she isn’t even beholden to the council (as much). Just look at Courtney Ruby over in Oakland.
    Something I’ve ALWAYS found astonishing, in 25+ years of reading Berkeley staff proposals, is how little genuine comparative analysis they usually contain. In most other cities (you can find this stuff on the web, dontcha know) staff proposals frequently include fairly neutral presentations of comparative cost/efficiency data from other cities. They present information that policy makers can genuinely use. In Berkeley, you often see only fragmentary and context-less information from other cities, and then only when it can be marshalled in support of the recommendation the staff is making. I’m of the opinion that most City of Berkeley reports wouldn’t stand up to 5 minutes of sustained cross-examination….but of course, for us to find out some elected official would have to pose the questions. Oh well, forget I brought it up.

  • TN

    I’d like to see some consideration of whether the City of Berkeley needs to have its own separate Fire Department. Other cities of moderate size are covered by consolidated Fire Districts which cover groups of cities. If for instance, Berkeley were to consolidate with Albany, Emeryville and perhaps other cities, we could spread the costs of overhead and management functions over a greater number of firefighters in front line positions. And perhaps other efficiencies in coverage could be found.

    I’d be loathe to not have an independent police department because local control would be lost. I’m not sure that fire services fall into the same category.

  • emraguso

    Thank you! That’s very kind.

  • emraguso

    We’ll continue to look at the budget in the coming months. These seem like good questions — not sure how easy it will be to find the answers but we can try.

  • emraguso

    Thanks for posting the link, Zelda — We’ve been meaning to take a closer look at this.

  • Boalted

    BGB…THank you, THank you.