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With Berkeley City Manager Phil Kamlarz saying that the city’s proposed fiscal year 2010 budget “is balanced and it looks pretty good,” Kamlarz’ office is already making preparations for what he calls “major problems” that are looming two years down the road. 

“That third year (fiscal year 2012) is hanging out there,” Berkeley Budget Manager Traci Veseley told the City Council last week as city staff gave the council its first look at the city’s proposed biennial budget for 2010 and 2011. “We’re going to have significant cost increases in 2012 that we need to recognize and prepare for now.” 

Kamlarz is projecting a $9.6 million city budget deficit in fiscal year 2012 alone, $.24 million more than he is projecting for fiscal years 2010 and 2011 combined. 

Fiscal year 2010 begins July 1 of this year and runs through June 30 of 2010. 

With revenues stagnating during the national economic recession, Kamlarz has submitted a General Fund proposed operating budget of $141.8 million in fiscal year 2010 and $144.1 million in fiscal year 2011 (up from $138 million in the current fiscal year) that closes a $9.36 million structural budget deficit over the next two years. Kamlarz proposes to balance the budget with $2.09 million in spending cuts over each of the next two fiscal years, an additional $1.53 million in spending cuts in fiscal year 2011, and some $2 million per year in revenue additions, the bulk of them coming from an across-the-board increase in city parking fine rates. 

In his cost-cutting strategies, Kamlarz has promised “no cuts to public safety front-line services, no cuts to community-based organization funding, [and] no cuts to youth services.” 

“Things [with the local, state and national economic situations] are changing by the day,” Kamlarz told councilmembers last week, “but we have cautious optimism [for Berkeley’s budget situation].” Kamlarz said that in his proposed two-year budget “we are projecting that the economy stabilizes for 2010, our [real estate] transfer tax revenue rebounds, our sales tax doesn’t decrease, and we have a modest growth in property tax revenue.” 

The city manager added that “some of the budget policies that the council has adopted have put us in fairly good stead for the upcoming proposed budget, especially as compared to some of our neighbor cities.” 

Although Kamlarz did not specify, it was clear that he was talking about neighboring Oakland, which is struggling to close an $83 million budget gap in the upcoming fiscal year. 

One of the adopted council budget policies Kamlarz specifically mentioned in his written budget message was a city hiring freeze implemented near the beginning of the 2009 fiscal year. Kamlarz said that the hiring freeze will continue through fiscal year 2011 at least. 

Even with the hiring freeze in place, however, Kamlarz is proposing the bulk of the expenditure cuts coming from the elimination of 32 vacant city staff positions and 34 filled staff positions over the next two years. In his budget message to the council, Kamlarz said that staff members in the 13 eliminated positions in 2010 “will be placed in available vacant positions so that no individual loses their job.” With 20 filled staff positions projected to be eliminated in fiscal year 2011, however, the city manager’s budget message didn’t promise that some current staff members wouldn’t lose Berkeley city employment that year. 

But while Kamlarz is confident that the city can close the fiscal year 2010 and 2011 budget deficits with relatively little pain, he calls the situation of fiscal year 2012 and beyond “an uncertain future.” “State budget actions and the depressed economy may worsen the biennial budget picture [in those years]”, Kamlarz wrote in his budget message. 

The big problem will be in city contributions to its employees’ retirement, made through the California Public Employees Retirement System (PERS). With the PERS investment portfolio tanking in the stock market collapse, city officials already know that city retirement expenses will rise beginning in fiscal year 2012. Staff is currently penciling in a $3 million per year General Fund cost increase by that year, while the actuary hired by the city is already forecasting that the yearly costs could be higher. With the city’s PERS costs taking a small but temporary drop in the current fiscal year—it takes several years for the PERS investment losses to show up in city costs—Kamlarz is recommending keeping the city PERS set-asides at its higher fiscal year 2009 level in order to build up a cushion for the hit the city will take two years from now.  

The council has scheduled two public hearings on the two-year budget during its regular meeting agenda for May 19 and again on June 9, with two community meetings currently scheduled for May 26 at 7 p.m. at St. John’s Presbyterian Church on College Avenue and June 1 at 7 p.m. at the Northbrae Community Church on the Alameda. Council adoption of the two-year budget is currently scheduled for the council’s regular June 23 meeting.