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.
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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