Opinion: Berkeley prioritizes employee benefits over capital improvements

Unfunded liabilities for infrastructure needs now exceed unfunded liabilities for employee pensions. Why, then, does the City Council prioritize paying down pensions rather than fixing roads and sidewalk?

When will my street be paved? We’ll need another bond for that.

Will my sidewalk be repaired this year? Hmmm, we don’t have enough funding.

I miss fishing with my son, when will the pier be fixed? Another 5 years – if all the stars align.

When will the grass be cut in the median strip on San Pablo? We don’t have enough employees.

On March 19th, the biennial report on the city’s Projections of Future Liabilities was presented to the City Council by Teresa Berkeley-Simmons, the city budget manager, and Henry Oyekanmi, the finance director. Since the last biennial report was issued in 2017, unfunded liabilities have increased from $994 million to $1.451 billion, or up by $457 million.

Unfunded liabilities for infrastructure skyrocketed to $786 million from $354 million two years ago. Infrastructure liabilities now surpass pension and healthcare liabilities by over $100 million.

And yet, the City Council’s primary focus when surplus money is found is on paying down the liabilities related to employees – rather than those of infrastructure, which are growing at a much faster rate. Moreover, the manner in which the Council is pursuing this unspoken policy choice of prioritizing employees over infrastructure is anything but transparent.

Unfunded liabilities are up by $457 million; from $994 million to $1.451 billion.

Despite all our escalating fees and new bonds – and repeated promises of improvements to our infrastructure from many of our city’s politicians, public works staff and public works commissioners if we simply vote for more of them – the relentless deterioration of our public commons throughout Berkeley continues.

Residents have voted affirmatively for new infrastructure measures on the ballot in the recent past: Measure M ($30 million bond for streets) in 2012; a second special parks tax in 2014; and Measure T1 ($100 million for infrastructure) in 2016. But the numbers in the March 19th report speak for themselves – we’re not even treading water.

If one looks at the state of our roads, it would have cost $102 million in 2017 to bring them up to the same condition as is enjoyed by residents of Novato or Hayward (Pavement Condition Index of 70); however, this year, the city would need $170 million. But because no roads were even paved last year, the prospect of ever attaining well-paved roads in the next decade looks dubious at best. As repeatedly pointed out by our previous city auditor, Ann-Marie Hogan, repair costs of streets increase exponentially when maintenance is deferred, which is clearly reflected in the new numbers.

One of the most illuminating moments at the March 19th meeting came when City Councilman Rigel Robinson, a 2018 UC Berkeley graduate, stated, “I’m trying to figure out the prioritization philosophy.” Specifically, he wanted to know why addressing pensions appeared more important – more urgent – than capital improvements.

Is the focus on pensions “born out of the expectation that we can keep turning to the voters for infrastructure bonds?” he asked. After a long pause, the city manager responded saying, “that is a really tough question.” She went on to say there is no order of prioritization, “as of yet.”

Employee compensation increased by $83.2 million this year

But there is an order of prioritization. In all the years I’ve been following the city’s finances, I’ve never witnessed anything as lavish as this year’s spending on employees – at the expense of our city’s crumbling roads, sidewalks, parks, and other infrastructure.

There are six newly adopted or proposed changes that will permanently shift massive amounts of funds to employees while crowding out other needs in the city. My estimate for this year is $83.2 million.

This $83.2 million, as outlined in the table below, is on top of this year’s $265 million in employee compensation (note: an average city of Berkeley employee will receive $182,000 in compensation in FY2020 [$285 million/1560 employees]).

It is important to note that the allocation of the $30.2 million, the largest amount of all the new spending on employees, was never mentioned at the March 19th meeting, or in the city’s Projections of Future Liabilities report, or in any City Council meeting – only the savings of $1.1 million for the prepayment was.

Shouldn’t City Council have discussed this in open session? And shouldn’t the public have had an opportunity to weigh in on a decision of this magnitude? What if residents had wanted to see some of their streets paved instead?

The policy had been voted on at a prior City Council meeting; however, the amount was not.

Public Records Act Request

The $30.2 million allocation to employees was discovered through a California Public Records Act request to the finance department after I noted a precipitous drop of >$80 million in an information report on the city’s cash and investment portfolio. This was the largest drop in 18 years and there was no explanation for the drop in the report. The city explained by email that part of the decline was due to the city prepaying the unfunded liability portion of the required CalPERS payment for FY2019.

City of Berkeley graph

Where did the remaining $53 million ($83.2 million – $30.2 million) for employees come from?

Through another California Public Records Act request to the budget department, it emerged that the $18 million increase in employees’ compensation this year came from the savings generated from the October 2012 refinancing of the Berkeley Repertory Theatre, Harrison Park, and 1947 Center Street building.

It is unclear where the $8 million for the new health care trust and the $4 million for the pension trust will come from; however, the rest is from sources referenced in the table above.

More infrastructure bonds ahead

Unlike the $83.2 million windfall for employees this year, no new spending for infrastructure was proposed on March 19th. None. Rather, most of the council endorsed the concept that homeowners will need to pay more for the decaying infrastructure by passing new bond measures.

The mayor began by saying, “The longer we wait the more it’s going to cost us,” followed by Harrison, “It’s only going to get more expensive, the roads aren’t going to repair themselves,” followed by Hahn, “I don’t see a really strong argument for delay if we are responsibly able to float more bonds,” followed by Wengraf, “If bonding is a way to achieve our goals, we do that” followed by Kesarwani, “I want to express my support for the bond analysis.”

Arreguín and Harrison stated how the city is “significantly underbonded” and has “additional bonding capacity,” because property owners are servicing less bond debt. It is notable that in these discussions, council members never consider the total tax burden that includes the numerous parcel taxes, fees, and other levies we pay compared to other cities.

Conclusions

With the budget season fast approaching, it will be interesting to see if there is any more transparency about the new employee spending – at the expense of infrastructure – that was outlined on March 19th.

What is most concerning is that many of the changes will be “baked in” to future budgets, and presumably employee contracts, thereby decreasing the funding available for infrastructure and other basic city services in subsequent years.

If you are content with this new policy which continues pushing resources into a system that needs to be reformed – keep voting for more bonds. That’s certainly what our elected representatives, and union officials, are banking on.

Isabelle Gaston lives in District 6 and is a former candidate for City Council.