City Staff Recommend Ways to Fix Berkeley's Growing Budget Deficit





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The Berkeley City Council learned last night that the city is facing a $2.86 million budget deficit.

In a detailed presentation, the city's staff laid out the myriad of reasons why it cannot fund the budget it laid out a year ago for fiscal 2003.

"We're telling you what's wrong with the patient," said City Budget Manager Paul Navazio. "There's a number of things we can do to fix it."

The staff blamed the bulk of the problem on greater than expected increases in health care, retirement and workers' compensation costs.

In order to make up for the shortfall, the staff recommended across-the-board cuts in nearly every city department. The council has until June 25 to balance the budget.

Following the staff's presentation, several council members in turn protested cuts in favored departments. But without a November tax increase or a sudden unexpected economic upswing, the council will have to make cuts in popular programs.

"Saying what we don't want to cut is like an only child saying what they want for Christmas," said Councilmember Polly Armstrong.

Berkeley's financial woes may get worse before they get better. Several dark clouds on the horizon further threaten the city's finances, not the least of which is the state's $22 billion budget deficit.

Navazio warned the state may try to overcome its budget shortfall by grabbing municipal property taxes. The city could lose as much as $3 million this year if the state appropriates its property taxes, Navazio said.

And the health care, workers' compensation and retirement costs that created this year's deficit will keep rising, according to the staff report.

Based on the updated calculations, the city predicts its deficit will swell to over $18 million if no action is taken.

The recent stock market decline has inadvertently caused retirement costs to rise above the levels staff predicted a year ago, Navazio said.

Berkeley's employees receive retirement coverage from CalPERS, the largest pension fund in the country. CalPERS lost massive amounts of equity as stocks declined last year-meaning it now has to charge its subscribers, including Berkeley, significantly more.

The city's balanced budget amendment means the city will never reach an $18 million budget deficit. But the city must change its free-spending ways, said City Manager Weldon Rucker.

"We're going to have to go beyond normal straight-line reductions," he said.

The city must re-examine some of its labor-friendly laws, such as its "no-layoff" of city employees policy. Rucker also said the city should rethink some of its citizen-oversight committees as a money-saving measure.

In the short term, Berkeley has some breathing room. The city's voters have shown great willingness to accept new voter-funded projects.

Berkeley Mayor Shirley Dean said she may go to the voters this November to secure funding for new city storm drains.

Berkeley can also fall back on a $2 million reserve fund it has accumulated for unforeseen events. Several agencies, including the city's library, owe the city a total of $1.8 million-although it is unclear how or when the city will collect the money.

But the city cannot tap the reserve fund every year. If an earthquake struck the city, it could be used up almost immediately.

"A million dollars. A disaster could wipe that out in three days," Armstrong said.

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