Pensions, infrastructure key Berkeley budget liabilities

Old city hall

One of the main areas Berkeley has liabilities is the maintenance of city facilities. The old City Hall has seismic issues and needs work, for example

Berkeley’s City Council on Tuesday night received the first biennial report on the city’s long-term liabilities. The detailed breakdowns in the report from city budget manager Teresa Berkeley-Simmons make clear that the main areas with significant liabilities are police pensions, maintenance of city facilities, and watershed and storm drain maintenance and improvements.

Speaking about the presentation of the report, Berkeley City Manager Christine Daniel said she hoped the Council would agree that budget reporting was improving generally and that the council members’ feedback would contribute to even more enhancements. She said the genesis of the current report could be traced back to 2005 when staff produced a report on employee benefits, then in 2008 when staff started putting information about unfunded liabilities in the budget document, and finally in the fall of 2011 when presentations were made on the status of capital assets and infrastructure.

Projected cost of future payments to CalPERS by the City of Berkeley. The fastest growth in cost is for the city’s non-safety workers. Click the chart to access an interactive version.

Working with an outside actuary, the city has aimed to fund 80% of pension liabilities on a 10- or 15-year time horizon. For fire and miscellaneous employees, Berkeley meets that desired standard: fire is funded 85% and miscellaneous 82%. Police pensions, however, are only funded 70%. According to Berkeley-Simmons, to reach the 80% mark within 10 years the city would need to contribute an additional $2.5 million to the Police Safety Plan each year for 10 years. If the goal is to reach 80% funding in 15 years, the annual contribution increase would be $1.7 million.

The report also estimates required capital improvements and maintenance of city facilities over the next five years, including buildings, marina docks and pools (but not major work on parks). Although the five-year estimate is for a required $23 million, the city’s budget only allocates $4 million for the work, creating an unfunded liability of $19 million.

Storm drains and the city’s Clean Stormwater Project represent another big chunk of unfunded liabilities. The city provides $2.3 million a year annually for storm drain work, which is supplemented by $245,000 annually from the University of California. But Berkeley-Simmons’ report calculates the unfunded liability at $37 million over the next five years: $32 million for capital improvements and $5 million for unfunded maintenance.

There are also shortfalls for retiree medical plans (although the most problematical, the Police Supplemental Retirement and Income Plan is now closed), workers compensation (although the report says it is a “good example” of how to address an unfunded liability over time), and the closed Safety Members Pension Fund and another closed SRIP for non-sworn employees.

A “simplistic” calculation on growth in payroll and benefit costs for the city over the next 10 years sees payroll grow from $134.7 million in FY12 to $169.7 in FY22 and benefits from from $76.5 million to $126.5 million over the same period. “Achieving a sustainable balance of both personnel and non-personnel expenditures against reasonable revenue projections will continue to require close attention, especially as the economy begins to recover,” the report notes.

Blocked-drain-Ashby-and-Shattuck-1024x764

City staff work to unblock a drain in Berkeley in March 2012. Storm drain maintenance is a key area in the city’s unfunded liabilities

The report addresses the question of why the city does not target 100% coverage of future liabilities. “The advantage of maintaining 100% funding for all long-term obligations at all times is that the organization will almost always be able to meet its obligations whenever demand is made for payment for each liability,” the report notes in concluding remarks. “The disadvantage is that a far greater portion of the organization’s cash is reserved or tied up, and cannot be used for operations, providing services or meeting other community needs or desires. The City has a history of prudently balancing its approach to future obligations with its response to current economic variables and as the economy begins to emerge from the impacts of this most recent recession, will continue to do so.”

The report has a number of suggestions for closing the various funding gaps. On PERS contributions, the report looks at the city’s savings from 2012 refinancings of some certificates of participation and a bond issue. These produced $5.7 million in present value savings in future debt service payments. In October, the City Council agreed to put the savings in the PERS savings fund, to help meet the growing PERS contribution obligations.

Prepayment of annual PERS obligations, which attracts a 3.8% discount, is also examined in the report. The report concludes that prepayment does not make economic sense because the CalPERS payroll projections and the city’s actual payroll do not match at the moment, and CalPERS provides credits for overpayment, not refunds. The report said city staff will monitor the situation and recommend prepayment when it produces savings.

credit: Kaia Diringer Berkeley Police Station

City budget manager Teresa Berkeley-Simmons said Berkeley Police pensions are only 70% funded. Photo: Kaia Diringer

To meet the shortfalls for infrastructure and capital assets, the report looks at two possibilities: setting aside “excess” property transfer tax and new bonding capacity.

Starting in FY2006, the city has made a policy of setting aside property transfer tax in excess of $10.5 million, which analysis suggested was an appropriate level for recurring PTT, ignoring fluctuations in property booms and busts. The report suggests that PTT over $10.5 million continues to be set aside in the capital improvement fund.

According to the report, the city has considerable new bonding capacity. The city currently has four outstanding general obligation (GO) bonds, not including bonds to be issued for Measure M, which passed last November. Just over $79 million is outstanding on the four GO bonds (Measure G from 1992, Measure S from 1996, Measure I from 2006, and Measure FF from 2008). By FY18 that debt drops to $57.5 million, by FY23 to $39.7 million, and by FY28 to $21 million, just over a quarter of today’s total.

Berkeley-Simmons’s report looks at two scenarios for Berkeley’s growth in assessed value to determine what the city’s bonding capacity could be in future — one possible avenue to deal with today’s unfunded liabilities. With 2% annual growth in assessed values over 30 years, there is $49 million capacity, and with 3% annual growth, $65 million in capacity (the scenarios assume a 6% discount rate, well above today’s low rates).

Related:
Berkeley council looks to IT to transform city operations [05.22.13]
Dog licence fees to rise, other Berkeley Council decisions [05.22.13]
New aquatics center raises parking, planning concerns [04.13.13]
Pensions, infrastructure key Berkeley budget liabilities [02.20.13]
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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  • Blacklotus

    Tax Cal and cut office staff !

  • http://www.facebook.com/alinacon Alina Constantinescu

    I thought Measure M was supposed to alleviate our stormwater infrastructure problems. Is $30M not enough?

  • http://www.berkeleyside.com/ lknobel

    Measure M funds will mostly go to streets. The only watershed improvements from M are directly related to the street work, like permeable paving and other green architectural elements.

  • guest

    berkeley city government = bottomless pit

  • 4Eenie

    How about some self-healing asphalt? From TED TALKS: http://www.ted.com/talks/erik_schlangen_a_self_healing_asphalt.html?q5285385=1

  • Zelda Bronstein

    As Knobel writes, the city manager’s report stated that UC pays the city $245,000 for the campus use of city sewers and storm drains.

    As I observed last night at public comment, the report erroneously attributed that payment to the university’s 2020 Long Range Development Plan. In fact, it stems from the agreement that the council secretly approved to settle the city’s 2005 lawsuit of the university over the expansion projected in the LRDP.

    The staff report also failed to note that, according to a 2004 independent report on the fiscal impact of the campus on the city that was commissioned by the city, the university used $2.7 million–not $245,000–worth of city sewers and storm drains in 2004. It also used $793,000 worth of city fire and emergency services and $398,000 worth of city police services. In all, the annual cost of providing these and other public services to UC amounted to $13.5 million in 2004 dollars.

    The 2004 study found that the campus growth projected in the LRDP would add $2 million each year to city taxpayers’ existing $13.5 million annual subsidy of the campus for its use of city services. That included $242,000more a year for increased use of sewers and storm drains.

    In all, the projected campus growth would cost Berkeley taxpayers $15.5 million a year.

    It’s common knowledge that the lawsuit, which was ostensibly intended to restrain campus expansion, ended up facilitating it.

    The settlement agreement capped the university’s payment to the city for city services through 2020 at one million dollars a year.

    We have to assume that since 2004–nine years ago–campus use of city services has increased, and that it will increase further.

    None of this appeared in the city manager’s report last night. A comprehensive analysis of Berkeley’s future liabilities needs to indicate how much UC use of city services is costing each year. I have been told by city staff that, astonishingly, no such record exists. If that’s true, such a record needs to be created.

  • pablopoint

    The situation is far worse than your article says. this isn’t the fault of the reporter, it’s because the report is not written in plain English and has no executive summary revealing TOTAL unfunded obligations over the next ten years.

    Still, if you really work at it you can dope out the following:
    1. the present value of unfunded pension/medical benefits is $362,000,000. Unless Berkeley pays all of it off this year, the deficit will increase every year, totaling far more by 2022.
    2. unbudgeted infrastructure needs over the next ten years will be a multiple of the reported $105,000,000. the report gives us only partial needs for five years. earlier reports point to total unbudgeted needs of about $500,000,000.

    The”solutions” proposed would at best yield about $58,000,000,with most of that not being available till after 2020.. this is far short of the half billion in needs admitted to by the report, and woefully short of the real total.

    A true solution must start with real facts.

  • Bill N

    Tax Cal would be nice but that’s not possible cut staff is an option if it’s done cleanly – that is deciding that a whole dept or service needs to go or sweeping up budgeted vacancies but you can’t piece meal these things across the board, The cuts need to be strategic and smart service cuts.

  • Guest

    Tax NCAA sports revenue. Tax the Cal “Intercolegiate Athletics” seating revenues.

  • guest123

    UC Berkeley was established in 1868. When did you move here?

  • Zelda Bronstein

    The date is irrelevant.

    What’s relevant is that UC is a state, not a city, institution. The state’s shameful neglect of the University of California should be redressed at the state level, not by Berkeley taxpayers. Same goes for each UC campus.

  • bgal4

    Thanks Zelda for speaking at council and providing this info.

  • guest

    Not Zelda, but my family’s been here since 1847. Do I have the right to comment now?

  • http://twitter.com/Pappachoppers Pappachoppers

    I agree that the date is absolutely irrelevant. What is absolutely apparent is that the representatives for the city did a poor job, as the University is only paying pennies on the dollar, while the homeowners are paying absorbent rates to supplement their usage. However, I would not expect more from the Berkeley Council.

  • Biker 94703

    A “simplistic” calculation on growth in payroll and benefit costs for
    the city over the next 10 years sees payroll grow from $134.7 million in
    FY12 to $169.7 in FY22 and benefits from from $76.5 million to $126.5
    million over the same period.

    It would be nice if you would explain what “simplistic” means. At a 3% inflation rate over a decade we get:
    PAYROLL: $135m in 2012 => $181m in 2022
    BENEFITS: $77m in 2012 => $104m in 2022
    To get benefits to $127m equates to a 5% inflation in costs.

    I’d be rather unhappy to see benefits increasing above the inflation rate.

  • Concerned Citizen

    We now have some light (not good enough, but a start) on what has been an abysmal showing by our city leaders. A liability is a liability. Borrowing more to pay down one liability to satisfy another does not eliminate the problem (though fixing issues to reduce future costs helps). And, taxing us further is not a solution; we already have some of the highest taxes in the state. Unfortunately, costs must come down. Balancing this thing is the only way to go. Kicking the can down the road is not leadership. By the way, increasing the tax base by encouraging development in our downtown area does help the situation, and in some ways improves the quality of life in Berkeley, by attracting more stores and restaurants in what has been a bit of a wasteland. Buildings like the one at the corner of MLK and University (the Trader Joe’s building), attracts about $750K in taxes per year. A few of these would go a long way and could help mass transit by improving ridership.

  • nkbickel

    Zelda, please identify the source of the 2004 independent report. Is it available in the web or in the public library?

  • Zelda Bronstein

    The report used to be on the city’s website, and it may still be there. If I have time, I’ll see if I can track down its location (should it still be posted).

    Its title: “UC Berkeley Fiscal Impact Analysis.” Its date is June 2004. It was done by Economic and Planning Systems, which has (or had) offices in Berkeley and Sacramento. The title page lists a number from the consultants, EPS #13009, so if the city no longer posts it, perhaps EPS can email people a copy.

  • Zelda Bronstein

    I just Googled “UC Berkeley Fiscal Impact Analysis,” and the top listing that came up was the report.

  • Chris J

    Which is part of the reason why my wife and I are going to retire somewhere OTHER than Berkeley…or CA for that matter. I applaud the efforts of city council to get UC or state of CA to cover their own asses, but I can’t rely on good intentions to make this city affordable.

    Hopefully social security won’t go bust and its combination with my own retirement savings will be adequate.