A new city audit warns that Berkeley’s ongoing reliance on one-time funding sources and rising personnel costs, such as salaries and benefits, pose risks to its long-term financial stability.
The audit’s findings are especially important as the city develops the budget for fiscal years 2027-28, with both years having large projected structural deficits.
“The City relied on one-time funding sources to balance its budget for the past several years,” said City Auditor Jenny Wong via email. “While one-time solutions relying on other funds can be appropriate to balance the General Fund temporarily, they do not address the General Fund structural deficit in the long run and can put long-term sustainability of these other funds at risk.”
The audit, which examines Berkeley’s financial condition from fiscal years 2016-25, found that the city has faced a persistent structural General Fund deficit for several years. This deficit has ranged from $12 million to $40 million. It is projected to reach approximately $32 million in fiscal year 2027 and $33 million in fiscal year 2028.
The audit also identified broader financial risks, including a $694.8 million pension liability for fiscal year 2025 — the amount the city owes in future retirement benefits to employees — and $1.8 billion in deferred maintenance, which represents a backlog of infrastructure and repair needs.
Although Berkeley’s revenues ultimately cover its expenses each year, aside from 2020, the audit found that this is largely due to one-time measures, like transferring funds from other sources, rather than recurring revenue keeping pace with spending.
In 2025, Berkeley redirected $4.7 million from its workers’ compensation fund to the General Fund to help close its fiscal 2025 gap, despite the program already being about $2 million short of covering its own liabilities, according to the audit. This put the city at risk of not being able to cover workers’ compensation benefits for employees who suffered work-related illnesses or injuries.
The audit also highlights the role of salaries and benefits in driving spending growth. Expenditures on salaries, benefits and pensions have steadily increased over time and make up a significant portion of the city’s budget. Salaries and benefits alone make up roughly half of Berkeley’s citywide spending and about two-thirds of its General Fund. Between fiscal years 2016-25, Berkeley’s total personnel expenditures grew by 20%.
The city has begun implementing more “sustainable budget strategies” during the development of the fiscal years 2027-28 budget, according to Wong. These include requiring departments with projected deficits to submit plans to structurally balance their finances.
The audit put forward multiple recommendations aimed at improving long-term financial sustainability, to which the City Council has agreed or partially agreed. These recommendations aim to develop long-term strategies to address the structural deficit.