Berkeley City Audit Report Cash Handling 4/1/2014



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We have gathered below a representative sampling of links where you can read about Berkeley finances and our looming unfunded liabilities disaster. Of particular concern is the unfunded public pension obligation. Why should taxpayers and future retirees care? Well, if “The money coming in is nowhere near enough to keep up with the money that will need to go out”, then the future will not be as good as any of us would like.

It is important to say that none of what we say should in any way indicate a lack of appreciation for the work done by the employees of our city. In light of the current disasters, we must particularly emphasize our respect for our first responders and their knowledge and willingness to take risks that make all of our lives safer.

Our concern here is for our ability to fulfill the promises made to employees who will retire in the future. Ignoring this issue will not make it go away.

Tilden Newt of spring, photo by S. Robey
Tilden Newt of spring, photo by S. Robey
■ Dialogue: "Berkeley Braces for Bankruptcy: Red Flag Warning from Berkeley City Auditor" and the Auditor's Response by Isabelle Gaston, PhD and Ann-Marie Hogan, Berkeley City Auditor:
Berkeley City Auditor warned the Berkeley City Manager and the Berkeley City Council that the City could face bankruptcy unless steps are taken to protect our reserves.
The Berkeley Daily Planet Thursday October 05, 2017 - 01:30:00 PM

■ What is the City Council Doing to protect our reserves?
City Council Recommendation: That the Council amend the General Fund Reserve Policy by utilizing a gradual step-based pathway to increase it incrementally saying this:
According to the Auditor’s Report, “General Fund Reserve Policy Fails to Convey that Maintaining the Reserve is a Priority,” Berkeley’s general fund reserve policy lacks all of the core elements recommended by the GFOA. In order for the City to continue operations and provide necessary services, especially during a crisis, the City of Berkeley must adopt an effective policy in regards to the general reserve fund.
  • However, this dishearteningly noncommittal City Council Pathway to increase emergency reserves uses this language:
    • "This is not intended to supersede other fiscal policies that the Council adopts with the biennial budgets. As such, the Reserve Policy calls for 50% of annual Excess Equity (revenue above expenditures), after the carryover process has concluded, to be transferred annually to the Reserves." If the Council continues to adopt "other fiscal policies" that supersede the accumulation of excess equity, then there will never be money to add to the reserves.  Excess Equity is unlikely and 50% of nothing is nothing!
  • And this:
    • "It is our recommendation that the reserve level should increase in an incremental and gradual manner from its current level to a higher level over the next few years." "Over the next few years"? This is no commitment at all!
See report Contact: Kriss Worthington, Councilmember, District 7, 981-7170
Berkeley City Council 01-24-2017 Regular Meeting Agenda Item 44

The California Public Employees’ Retirement System, or Calpers, said Loyalton had 30 days to hand over $1.6 million, more than its entire annual budget, to fund the pensions of its four retirees. Otherwise, Loyalton stood to become the first place in California — perhaps in the nation — where a powerful state retirement system cut retirees’ pensions because their town was a deadbeat.
New York Times OCT. 9, 2016

■ STUDY FINDS PUBLIC PENSION PROMISES EXCEED ABILITY TO PAY “If you owed student loans of $44,000, and the bank called you up and said, ‘actually you owe $134,000,’ you’d fall off your chair,” said Charles E. F. Millard, head of pension relations at Citigroup. “That’s what this is.” One of the report’s recommendations was that governments start disclosing the amounts promised to retirees, “so that everyone can see them.” Government officials are in many cases loath to do that because they believe it will harm their credit ratings, driving up borrowing costs. And the unions that represent public workers believe calls for full disclosure mask a broad anti-labor campaign to cut benefits. The report discussed possible solutions, such as “collective defined contribution plans,” in which workers’ nest eggs are pooled and professionally invested, but retirees are not promised a predetermined benefit, and taxpayers are not required to replace money lost on Wall Street.
New York Times MARCH 17, 2016

■ THE PENSION GAP It was a deal that wasn’t supposed to cost taxpayers an extra dime. Now the state’s annual tab is in the billions, and the cost keeps climbing. CalPERS had projected in 1999 that the improved benefits would cause no increase in the state’s annual pension contributions over the next 11 years. In fact, the state had to raise its payments by a total of $18 billion over that period to fill the gap, according to an analysis of CalPERS data. Today, the difference between what all California government agencies have set aside for pensions and what they will eventually owe amounts to $241 billion, according to the state controller. L. A. Times SEPT. 18, 2016

■ The nation's largest pension fund, the California Public Employees’ Retirement System, earned a mere 0.6% in the last year, significantly below its 7.5% target. Its sister fund, the California State Teachers Retirement system, which also aims for a 7.5% annual return, instead notched a 1.4% gain for the year.

■ Why Is Calpers Underperforming?

■ “Even under the (Governmental Accounting Standards Board) method, they [the Public Pension Plans] show significant unfunded liabilities. Using the method we propose in the task force paper, unfunded liabilities are significantly larger and the cost to the plans significantly larger.”

■ Financial Times July 31, 2016, Retirement healthcare could bust the budgets of many US cities, Robert Pozen

■ Court ruling opens avenue for pension reform

■ PENSION SPIKING DECISION BY THE COURT OF APPEAL of the State Of California, Ruling Filed August 17, 2016: The practice known as “pension spiking,” by which public employees use various stratagems and ploys to inflate their income and retirement benefits, has long drawn public ire and legislative chagrin. Effective January 1, 2013, the Legislature amended Government Code section 31461, a provision of the County Employees Retirement Law, with the aim of curtailing pension spiking by excluding specified items from the calculation of retirement income...
“California’s pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently. Unless aggressive reforms are implemented now, the problem will get far worse, forcing counties and cities to severely reduce services and layoff employees to meet pension obligations.” … “The money coming in is nowhere near enough to keep up with the money that will need to go out.”

■ The website shows compensation and benefits for Berkeley employees and retirees through 2015. Retiree pensions can be seen here: