As everyone certainly knows, government, families and individuals are facing catastrophic loss of assets and income, a situation deemed by most experts as the most serious since the Great Depression. There is no sure end in sight and there is a reasonable chance that the situation could even worsen.
After years of high spending and high local taxation, the City of Berkeley is facing an annual operating deficit of 16.5M which will grow exponentially unless drastic measures are taken. In one category alone, City contributions for employee retirement, the projections indicate an increase of more than 50% between 2009 and 2016. As bad as are these current deficits, there are hundred of millions in unfunded longterm City liabilities that must be addressed. But there has not been a full public accounting of the City’s long term unfunded liabilities for personnel costs, infrastructure requirements, and bonded indebtedness. A clear assessment of our short-term situation, of immediate spending and cuts and new revenues, surely should not be made without this overall picture. A report on the City’s longterm unfunded liabilities, prompted by a group of concerned citizens and to be prepared by the City Manager, was due in early May but has yet to be produced. Meanwhile, budget decisions are proceeding without this framework for informed decisionmaking.
FY 2011 Citywide Operating Deficit of about $16.5M
The City’s all-fund annual budget is about $325M and includes the General Fund budget of about $150M and “special funds” budgets of about $175M. 77% of the City’s overall budget, about $250M, is devoted to personnel costs. Many of the “special funds” (e.g. refuse, public health) are budget and tax fictions that justify special fees, taxes, and entrenched programs, confuse the public and City Council, and make priority-setting and spending decisions quite complicated. Resident property owners should study their various bills to understand the nature and scope of local taxation: the property tax bill (right side) for a list of special taxes; the property tax bill (left side under “voter approved debt service”) for bonded indebtedness; the various utility and refuse bills for a wide variety of fees and taxes. Many Berkeley property owners are shocked by the “City of Berkeley Sewer Service Fee” billed for the City by EBMUD, and no one seems to know exactly how it is accounted for or spent.
The General Fund (which pays for most of our essential public safety and general government services) is supported by base real property taxes, the property transfer tax, the City sales tax, City utility users taxes, the hotel tax, and parking revenues. All of these revenues are down, about $6.5M down in total. We note that the controversial increase in parking meter fees and fines, instead of the projected revenue infusion, resulted in a loss of about $1.5M in parking revenues in addition to the loss to local merchants from fewer customers. People are still free to avoid Berkeley and shop elsewhere. We do not want to reach the point where productive families avoid living here and choose to live elsewhere.
Special Fund losses account for the additional $9.5M deficit. The biggest of these is a $4M+ deficit in the “Refuse Fund” despite the unpopular recent 20% rate increase implemented in a dubious “protest vote” manner. Residents and even some Councilmembers are stunned at the apparent lack of knowledge, planning, foresight, and business sense evident in this situation, and are calling for a complete rethinking of Berkeley’s refuse service. While some apologists point to increased resident recycling, reduced resident waste and can size, reduced use of the Transfer Station, and ongoing poaching of recyclables, the basic cause of the huge deficit is stunningly simple—Berkeley uses almost twice as many refuse employees per route as any neighboring City, the compensation for these employees has steadily increased, and the department functions under arcane work rules that allow refuse employees to have short runs, depart work early and/or sign up for overtime on other routes.
Other Revenue Problems
There are numerous other revenue issues and shortages that will impact us—for example, at the permit center, in mental health services, in affordable housing funding . One of the most shocking pertains to the voter-approved animal shelter. While the voters approved a $7.2M bond in 2002 based on the written descriptions, promises, and commitments made at that time, there has apparently been so much infighting, confusion, extravagant demands, and delay that the shelter has not only remained unbuilt, there are now cost overruns projected at about $4.5M. The City has allocated $1M from the General Fund to “subsidize” the 2002 bond, and the City approved an additional City bonded indebtedness of $4-5M to cover the shortfall. This indebtedness went forward without voter approval, in the form of Certificates of Participation, which will cost the General Fund an additional $340,000 annually for the life of the bond.
Clearly, this is a terrible situation for the City, its residents, and its taxpayers. Various powerful interest groups continue to press for their own particular funding without apparent regard for the long-term well-being and sustainability of the City and of its actual silent majority of taxpayer families. Pool advocates want almost $23M in a bond for new pools; City refuse collectors are obviously disinclined to give up their overmanned routes and privileged work rules, and they flood City Council meetings with their members; many animal advocates don’t seem to care how much it costs to get a perfect animal shelter in a perfect location with perfect state-of-the-art medical facilities; Berkeley renters will vote to pass any tax measure so long as it is not paid by them but by homeowners, actually a form of representation without taxation; City employees are loathe to change their multimillion dollar personal guaranteed pension plan which is unmatched anywhere except on Wall Street and to which they made no financial contribution; City streets are crumbling, our traffic lights are archaic, and current shortfalls (mostly for personnel costs) are being financed with capital maintenance moneys and scarce Reserve Funds; the City’s Reserve Fund of about $14M is well below the 15% norm and still shrinking.
To begin to see our way out of the current and long-term economic crisis, if there is a way out, responsible politicians, residents and employees need:
1. Receive, review and integrate into decisionmaking a complete, competent and accurate audit of the City’s long term liabilities for pensions and related employee costs, infrastructure requirements, and bonded indebtedness;
2. Come to immediate grips with the unfairness and unsustainabilty of the current City employee compensation structure and work rules, and make immediate changes in the labor contracts and/or in City Manager-promulgated work mandates; insofar as feasible, limit employee terminations by re-assigning employees and cutting hours/expenses across-the-board; where terminations are required by economic reality, terminate ineffective and unreliable employees and programs first, regardless of longevity and political pressures;
3. Seriously examine all City programs for intrinsic value, efficiency, and effectiveness, prioritize on a scale of essential to relatively non-essential, and make appropriate alterations and eliminations; put first things first—public safety and basic infrastructure; provide educational and safety net services that really work, not simply sound good; add no new taxes, fees or programs until we have our priorities straight and there is a real community consensus;
4. Set up a truly representative budget review commission comprised of ordinary taxpayers and economic experts, one that is not slanted to special-interest money seekers or that is impervious to the declining fortunes of most Berkeley residents, businesses, and taxpayers; this commission should develop its knowledge and expertise and become the go-to group for feedback to the City Council and City Manager on spending, programs, and taxes.
The economic world has changed for the foreseeable future and we in Berkeley simply cannot conduct our business as usual.