City considers 10% budget cuts, with $29M deficit possible

With a potential budget deficit of $29 million looming, Berkeley leaders are looking at how to cut General Fund spending by 10% across the board.

In the coming months, departments have been asked to “come up with scenarios” for what 10% reductions might look like.

That’s on top of the hiring freeze in Berkeley that began last year and is projected to continue.

“Will we lose additional vacant positions? Will filled positions be impacted?” Deputy City Manager David White told officials earlier this year. “I don’t know the answers to those questions yet.”

The challenge is Berkeley’s structural deficit, an ongoing shortfall of nearly $30 million.

Last year, the city used largely one-time solutions to plug the gap — but officials agreed: That can’t continue.

“We really have exhausted a lot of these maneuvers,” White explained to a Berkeley City Council subcommittee during the most recent budget overview.

Since 2020-21, General Fund expenses have risen from about $236 million to $311 million. For a variety of reasons, revenues have not kept up.

The bulk of the increase — $63 million — has stemmed from personnel costs, White said, as the city added about 100 full-time positions to the General Fund payroll.

Most of the General Fund spending — $211 million, or 68% — comes from personnel costs, with salaries tallying about 50% ($105 million) and ballooning pension costs and health insurance premiums making up much of the rest.

Personnel expenditures in Berkeley and projected pension costs. *City of Berkeley*

“What’s important to note is, even if you were to try to hold all of this constant, and you just froze all of our compensation to employees, it’s still going to increase over time,” White explained.

About half of the personnel costs come from the police and fire departments.

Unfunded liabilities — projected pension costs — are expected to go up by $10 million by 2031.

“So what keeps us up at night?” he continued. “There are a lot of things.”

In addition to pension and health care costs, White pointed to the uncertain federal landscape, changes in mental health funding, upcoming labor negotiations with police and firefighters, and increases in utility and insurance charges.

Inflation has also driven up material and labor costs, making infrastructure projects cost more than expected. The marina has struggled — with the DoubleTree hotel “having issues paying the rent” — and parking revenues have been lower than anticipated.

White said Berkeley also continues to grapple with aging municipal buildings, resulting in unexpected financial demands.

“You see the scaffolding across the street,” he told officials. “Who would have thought that a piece of the facade would fall off of that facility?”

He also referenced “issues with the water here in City Hall,” which prompted a city-wide assessment “to make sure our employees are safe.”

“This is what comes with the territory when you deal with aging facilities, but we don’t have the resources in place for all of this work,” White said.

The city will soon be considering “additional bond measures” for building updates and repairs, he said: “There’s no other way that we can keep them up to snuff.”

An “Illustrative General Fund Forecast” from the city of Berkeley.

White cautioned that the $29 million budget deficit projection was “our best guess … at this moment,” and said it could change as numbers firm up in 2026.

In late October, the city manager asked each department to develop “budget reduction scenarios” to cut costs by 10% to help figure out a path forward.

Charter officers and the Berkeley City Council are also expected to participate in the exercise.

Also in the fall, the city brought on a new budget manager, following the retirement of the prior manager, and began monthly meetings with labor unions to keep open lines of communication.

“It will take time to digest this,” White said. “We’re going to have to go through a lot of iterative conversations to land on something that will ultimately be acceptable.”

He said he hoped to bring forward a proposed citywide budget reduction plan in April.

Given the potential workforce impacts, White urged officials to be as conservative as possible with any spending asks as the year unfolds.

“Any dollar that we might have in savings, we should hold that in reserve,” he said. “And we should do our best to utilize that to address our deficit next fiscal year or the following fiscal year.”

Read more on the city website about the city of Berkeley budget.