A report by the Berkeley city auditor’s office, published in April as the city drove toward its biennial budgetary period, reflected poorly on the city’s longtime habit of using one-time funding measures to balance its budget. The city agreed to many of the auditor’s office’s recommendations, and the council signed off to report back on implementation in the fall.
Since then, however, facing the city’s $30 million deficit and a June 23 vote to approve the budget for the next two years, items intended to improve the city’s finances have dominated council agendas.
Here’s how the city has made progress on the auditor’s report:
Closing a $30 million structural deficit
“Berkeley faces an ongoing structural General Fund deficit due in part to one-time balancing measures,” the city auditor’s office wrote in April. “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 city’s $30 million structural deficit has forced the city to consider sweeping cuts to public services, including to police, fire and city-wide staffing cuts.
The April audit suggests that the city nets more in revenues than it spends in a given year, but because the city crafts its budget based on predicted values it faces a deficit that it must balance. The auditor’s office celebrated the decision by city management to begin considering actual expenditures instead of prior budgets in crafting the 2027-28 budget, but encouraged the city to also commit to more sustainable budgeting practices and forgo dependence on one-time funding measures.
The council reflected soberly on this bad habit at a May 19 meeting, where they also elected to move forward with a 0.5% sales tax increase set to go on the November ballot that intends to generate roughly $10 million for the city.
“In a way this is a budget that meets the moment we are in. That does not make it at all easy,” said District 4 Councilmember Igor Tregubat the May 19 meeting. “We can no longer afford to continue the status quo because doing so would just continue to backdate the pain and make the shared pain even harder in the future.”
Addressing unfunded infrastructure needs
The auditor also highlighted the nearly $1.8 billion in unfunded capital infrastructure needs, which the city has let grow over the years and which the auditor warns the city has potentially made worse in doing so.
While the audit did not assess how much of these relate to increased expenses from deferring maintenance, city auditor Jenny Wong said in an email “we do know that the longer the City leaves unfunded capital needs unaddressed, the more expensive they will be to address in the future.”
The city’s infrastructure needs range from road maintenance to expanding accessibility and updating aging fire stations and civic centers.
At the May 19 meeting, council also forwarded a $300 million infrastructure bond for November voters’ approval. That bond, which would be funded through a levied property tax, would require two-thirds of voters to sign off for it to pass.
Cutting enterprise fund deficits
In addition to the general fund, Berkeley maintains a number of enterprise funds, which cover services like parking or city health inspections that generate their own revenues.
These funds should in theory cover the cost of their own services and even generate funds for the city, but in previous years Berkeley has subsidized these funds to maintain them.
“When enterprise funds have structural deficits, they may rely on transfers from the General Fund to balance and may worsen the overall City budget deficit,” the city auditor’s office wrote in April.
To address these shortfalls, the city manager required all departments to submit balancing plans for the current budgetary cycle. Additionally, the City Council has passed a host of fee increases in recent meetings, including measures pushed Tuesday night intended to balance parking enforcement, the Environmental Health Division and support the city’s zero waste services.
Those fee hikes passed even as public commenters raised concerns about their impacts on city residents who may already be struggling to make ends meet in a tough economy.