Berkeley will have to reduce services and employee compensation to remain financially sustainable because of unfunded pensions and infrastructure, according to a report presented at last week’s Berkeley City Council meeting
Due to a projected $4 million increase in the city’s pension costs between 2016 and 2017 as well as unfunded infrastructure and services, the report said, Berkeley will have to cut spending across the board. The report, written by the city auditor, re-evaluated a 2010 audit on the fiscal effects of changes to employee benefits.
Recent policy changes in CalPERS, the agency that manages the state pension plan, will increase annual costs in Berkeley and other cities, ultimately decreasing pension liabilities in the long term. The report suggested that Berkeley and other California cities reduce services and compensation in order to pay these new expenses.
While the city should reduce services and compensation, cutting certain services could result in “inappropriate risks” that would be harmful in the long term, said City Auditor Ann-Marie Hogan.
“It’s a very common practice of cutting oversight and support services,” she said. “If they cut a position in payroll audit, the result would be that the paychecks were wrong.”
Additionally, the report recommended spending more than $500 million on repair and restoration of the city’s infrastructure and public spaces or face larger costs in the future if the repairs are not completed.
Councilmember Gordon Wozniak said the city’s financial situation can be improved by prioritizing the creation of revenue over focusing on cutting services.
“The problem is reducing services doesn’t necessarily solve the problem,” he said.
Wozniak said the city is trying to increase development in Downtown Berkeley in order to generate additional revenue and has been working with UC Berkeley to keep campus startups in Berkeley. Laying off many workers to cut expenses would result in too high a ratio of retirees to workers for the pension system to be supported, he added.
John Ellwood, professor at the Goldman School of Public Policy at UC Berkeley, said the traditional view of city financial planning would necessitate a reduction in services.
“Californians are unwilling to raise taxes. So if pensions go up, you have to cut more services if you’re unwilling to dramatically raise revenues,” Ellwood said.
The city government has been working with the unions in Berkeley to renegotiate labor contracts without cost of living increases and reductions in health care costs to avoid budget increases, according to Wozniak.
Berkeley is also in the process of updating its antiquated financial system, which would allow the council to do “better analysis with the proper tools,” Wozniak said.
“The city is trying to be more efficient and investing in (technology) to make each employee more efficient,” he said. “We can’t change employees dramatically, and it has to be done slowly over time.”
Hogan said the city may need to spend more on analytics so it can make informed fiscal decisions.
“The big contribution that both the community and the council can make right now to maintain the good analytical capacity … is to maintain a direct but respectful attitude when grappling with these tough issues,”she said. “It’s important in staff morale and making difficult decisions.”
Contact Madeleine Pauker at mpauker[email protected]