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Some claim high pensions could deplete Berkeley's funds

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FEBRUARY 27, 2012

When Berkeley’s city manager Phil Kamlarz retired in November 2011, he took nearly a quarter of a million dollars in annual pensions with him, raising eyebrows over the current pension system and the security of Berkeley’s financial future.

Kamlarz, who worked for the city for 36 years, will have an annual pension of $249,420, which is slightly larger than the $242,580 he made when he left as city manager. Berkeley’s pension funds have suffered since the stock market crash of 2008, forcing the city to pay more out of pocket — a problem that some claim could eventually drive the city into bankruptcy.

Berkeley currently faces $329.87 million in unfunded liabilities, which are costs that are not presently due but must be paid in the future, according to city spokesperson Mary Kay Clunies-Ross. Of the nearly $330 million in unfunded liabilities, pensions account for approximately $205 million.

Part of the high pension costs lies in the fact that the city covers not only the employer contribution but also most employees’ 8 percent individual employee contribution for CalPERS, a state pension fund that uses investment returns to provide for employee pensions. Most city employees receive 2.7 percent of their salary at age 55 for every year that they worked. Firefighters and police, who do pay their CalPERS employee contributions, receive 3 percent at age 50 instead.

This means that if an employee offered 3 percent at age 50 were to work 30 years, he would get 90 percent of his salary after retirement past age 50.

Vallejo City Councilmember Marti Brown said that not even Vallejo, which went bankrupt in 2009 from plummeting tax revenues and high spending on employee salaries and benefits, was paying employees’ full contribution as Berkeley does.

“Hardly any cities anymore are doing that,” Brown said. “I can’t see how cities can afford to pay employee contributions for (CalPERS).”

The city had to close a projected budget deficit of $12.2 million in fiscal year 2012 and is looking at a similar shortfall for the upcoming fiscal year.

While lowering the city’s pensions contributions would ease some of these costs, the city has to negotiate with the unions that represent its employees to change the pensions agreements, and since that has yet to happen, the city has instead been faced with rising CalPERS cost.

The city is expected to pay $32.8 million to CalPERS in fiscal year 2012, according to CalPERS spokesperson Amy Norris. And without any change to the current system, CalPERS costs are expected to increase by $7 million over the next two years, according to the city’s budget report for fiscal year 2013.

This is a problem that members of Berkeley Budget SOS say the city has been sweeping under the rug for years now.

“The city auditor … she’s warned the City Council that they’re in real trouble, but the City Council pays no attention,” said Tim Wallace, a member of Berkeley Budget SOS and an agricultural economist with UC Berkeley.

Berkeley City Councilmember Gordon Wozniak, however, said that the council has been actively pushing for a two-tiered pension system, which could help alleviate pension costs by offering new employees a different pension package from that offered to current employees.

According to a budget report from a special meeting of Berkeley City Council Feb. 14, if all employees hired after July 1 of this year agreed to 2 percent instead of 2.7 percent at 55, the city would save $176,000 in fiscal year 2013 and $2.67 million by 2023. Over 10 years, the city would have a combined savings of $15 million, according to the report.

The Service Employees International Union Local 1021, which represents the city’s maintenance and clerical workers, agreed to a two-tiered system in June of last year. However, this will not be implemented until the city negotiates a similar system with all its other unions, according to union spokesperson Carlos Rivera.

This means that the city will have to reach agreements with all four of the other unions that represent the city’s employees and whose contracts expire in June of this year.

The city is currently negotiating with the Berkeley Police Association, and negotiations with the Berkeley Firefighters Association will not begin until that is finished, said Jim Geissinger, president of the Berkeley Firefighters Association. He added that BFFA negotiations typically last about 18 months.

Jeff Apkarian, business agent with Public Employees Union Local 1 — another union that represents city employees — said negotiations for his union normally start in March or April and last a few months.

“The only thing we know for sure is that we’ll be talking about retirement,” Apkarian said.

While the unions negotiate with the city, the city of Berkeley will be trying to balance its budget for the upcoming fiscal year in the coming months, taking into account the pensions costs they have agreed to pay while also dealing with a projected shortfall expected to surpass $10 million.

Vallejo City Councilmember Marti Brown remained optimistic but advised that cities like Berkeley learn from Vallejo’s mistakes — to take action now before it’s too late.

“I’d be surprised if they (Berkeley) ever reach the situation that Vallejo is in,” Brown said. “I hope that our experience tells other cities, ’Don’t wait until it hits you.’ You need to make cutbacks now. You need to make concessions from your employees now.”

Jaehak Yu covers city government.

Jaehak Yu covers city government.

FEBRUARY 28, 2012