Last Tuesday night at City Council, an illuminating exchange took place between the Berkeley City Manager, Dee Williams-Ridley, and City Councilmember Sophie Hahn.
The agenda item was the proposed FY2018/FY2019 budget. There were several questions posed by council members but the most extraordinary were those regarding the long-term costs of employees asked by Councilmember Hahn.
Hahn’s questioning was timely, because, over the last three years, the City has hired 73 new employees – with few sources of new revenue to pay for many of them (the City has a structural deficit of millions of dollars). In the City Manager’s office alone, five new positions were created at a cost of approximately $1.5 million.
The deficit this budget cycle has ballooned to $10.5 million due primarily to employee compensation; and in 2016, the City’s unfunded liabilities for City retirees topped $640 million (a $90 million increase from 2015).
Councilmember Hahn began her remarks by saying “the City’s biggest challenge is its pension and health care costs,” and therefore, knowing what the long-term obligations are for every new employee is important.
Hahn went on to say that she had spoken with the City Manager earlier in the day about this issue and that the City Manager told her that it was difficult to project over the long run – say 50 years – what an employee will cost because it depends on many factors. These factors include how old the employee is; whether the individual is a “Classic” employee or not; and how many years the employee had worked.
From the polite, but the somewhat heated exchange that follows, Hahn is clearly looking for more specific answers.
Hahn: “It is difficult for me because when we add personnel, we are taking on costs with a very long life – they are a long term hit on our finances….Is there any way we can have any information or are we stuck throwing ourselves into the future without really having a sense of what we are obligating ourselves – and how much we’re adding to those unfunded liabilities? You know, it’s not just every year that we’re paying in salary and benefits; it’s the long run. How much are these people costing – these positions?”
City Manager: “So – we – during our conversation, talked a little about putting numbers out there that are incorrect and perhaps waiting for our actuary that is provided to this Council that we can bring back in two years….” The City Manager then went on to explain that the City needs actual employees (bodies) in place to do an analysis, not full-time equivalents (FTEs), to get an accurate number due to all the assumptions that are required, and that when the actuary comes back in two years, such an analysis could be provided.
Hahn: “I understand, I will say I think we can come up with six imaginary employees. So someone joined at the age of 40 and stayed for 20 years, and they had a salary of 100K and went to 114K or 120K.”
City Manager: “And you and I spoke about that as well, I could give you a hypothetical. But one of the things we try to shy away from is putting out hypothetical numbers to the Council and the public and giving you inaccurate information.”
Hahn: “It wouldn’t be hypothetical to the actual person but it may not represent an actual person.”
City Manager: “Well, because, I don’t know, there just are too many assumptions.”
The Mayor then cut off the discussion and said they should continue off line.
The City Manager’s remarks, in my opinion, showed a willful ignorance. It was clear to me that she has no idea what the long-term costs of employees are, nor is she in any particular rush to find out.
The type of cost estimates Hahn is requesting do not require high-level math. Anyone with a rudimentary knowledge of Excel could provide Hahn with these data.
How can a City plan or have a realistic budget without having a vague notion regarding long-term expenses? It can’t, and it’s becoming increasingly obvious the City is failing in this regard. Exhibit A: the $640 million debt, which grows by tens of millions of dollars every year. In addition, last year the City Manager gave out $11 million in raises despite a large deficit. How was the budget balanced? Service cuts, reductions in infrastructure spending, and increased taxes and fees.
Berkeley taxpayers deserve a City Manager with sound financial judgment and one that can responsibly manage Berkeley and its $420 million annual budget. It is inexcusable to not know such basic facts as what an employee’s long-term costs are (even an estimate). Any respectable CEO would be dismissed by a Board of Directors to not have this information – much less say, “I’ll get back to you in two years.”
In summary, yes, the City’s biggest challenge is its pension and health care costs. And thankfully, at least one of our councilpersons has finally been brave enough to put this front and center.