As Berkeley Considers New Taxes, Affordability Matters More Than Ever

Over the coming months, WOM Berkeley will analyze the November 2026 ballot measures and other issues affecting our city. As Berkeley enters election season, one question should guide the discussion: Can residents and businesses afford more taxes and borrowing right now?

The Financial Fallout of War and Uncertainty

Recent economic uncertainty, rising energy costs, and persistent inflation are already putting pressure on household budgets. A recent New York Times article quoted an economist with the Organization for Economic Cooperation and Development, who warned that, in the worst-case scenario, global economic growth could fall to 2.1% this year, about half the average rate of the past 25 years. He added that “households and firms will face a very dire situation.” 

Economists may disagree about the scale of the impact, but concern is mounting about slower growth, higher gas and food prices, and shortages of oil and critical commodities. Berkeley residents are already paying more for fuel, food, travel, and other necessities. As expenses keep rising, residents and businesses are making difficult choices, and as reported in Berkeleyside, some are even leaving Berkeley.

City Readiness 

Yet the City Council appears unprepared for the challenges ahead and may not fully appreciate the financial strain residents already face. At a recent budget meeting on the proposed November 2026 ballot measures and the city’s $30 million structural deficit, the city manager cited inflation tied to the Iran war and rising oil prices, saying, “We’re anticipating more Iran war- and oil price-related increases.” 

He did not explain what those added costs could mean for residents or for the city’s budget (would it increase the structural deficit?), and no councilmembers pressed for specifics. That lack of explanation was both disappointing and concerning because based on the most recent finance report, the city is ailing.

Reduced Purchasing Power for Residents

If the city anticipates higher inflation, why is City Council planning for a 5% increase in the sales tax and approximately $600 million in borrowing ($300 million General Obligation Bond)? Further, councilmembers have endorsed a Public Bank Parcel Tax, Arts Parcel Tax, and Sugar-Sweetened Beverage Tax.  

Collectively, these measures could drain thousands of dollars of purchasing power from the average household. Council hopes the proposed sales tax increase will generate roughly $9 million annually, but sales tax revenues can be volatile during periods of economic uncertainty. Because consumers encounter reduced discretionary spending, revenues may fall well short of projections while the city's structural deficit remains.

The proposed bond measure also deserves careful scrutiny. Higher interest rates and Berkeley's lower credit rating compared with a decade ago mean taxpayers are likely to pay more to borrow the same amount of money. Rising construction costs could further reduce the purchasing power of bond proceeds.

Does City Council Grasp the Challenges

The key question is whether city leaders fully understand the affordability pressures Berkeley residents already face? Raising an important question: Is this the right time to place multiple tax and borrowing measures before voters?

Berkeley's fiscal challenges are real, but structural deficits require structural solutions. Before asking residents to approve multiple new taxes and borrowing measures, city leaders should take meaningful steps to address the structural drivers of our ongoing and increasing budget deficits.

As voters evaluate the November ballot, affordability and sustainable fiscal management should remain at the center of the conversation.

A Structural Deficit Demands Structural Solutions: The Discussion City Council Never Had

On May 19, Berkeley City Council met to discuss the city's structural budget deficit and potential revenue measures to address it. Throughout the meeting, city staff reiterated a fundamental reality: Berkeley's structural deficit is driven by rising personnel, pension, and healthcare costs that have grown faster than recurring revenues.

But that is only part of the story.

Between FY2016 and FY2026, Berkeley's revenues grew from approximately $376 million to $765 million—more than doubling over the decade. During that same period, revenues grew at an average annual rate of 7.4%, while expenditures grew at 7.7% annually.

Despite this extraordinary revenue growth, Berkeley continues to face a persistent structural deficit. The city also carries substantial long-term obligations, including approximately $700 million in unfunded pension and retiree healthcare liabilities.

The implication is difficult to ignore: Berkeley's fiscal challenges are not simply the result of inadequate revenue growth. Even during a decade of rapidly expanding revenues, the city was unable to keep pace with its long-term financial commitments.

This outcome was predictable. For years, we have been warning that expenditures growing faster than revenues are producing structural imbalances that compound over time.

More concerning is the possibility that Berkeley is approaching a fiscal critical juncture—one in which one or many factors could significantly worsen the city's financial position.

Potential triggering events include:

• A slowdown in new development. New construction is one of the few mechanisms that permanently expands Berkeley's property tax base. Recent city analyses indicate that major development projects generate net positive General Fund impacts, meaning a slowdown could reduce future revenue growth.

• A stock market downturn. California's fiscal model depends heavily on financial markets. Capital gains taxes generate a significant share of state revenues, while CalPERS investment returns help fund public employee pensions. A major market decline could simultaneously reduce public revenues and increase Berkeley’s $695 million unfunded pension liabilities.

• Persistent inflation. Inflation raises the cost of salaries, healthcare, pensions, and infrastructure while potentially weakening financial markets. The result can be widening budget deficits and higher employer pension contributions.

Given these risks, one might expect a robust discussion of structural reforms designed to address the underlying drivers of the deficit.

Instead, the conversation largely focused on service reductions, revenue measures—most notably a proposed sales tax increase—and the impacts of potential budget cuts.

Notably absent was any meaningful discussion of pension costs, retiree healthcare obligations, employee benefit structures, or other long-term cost drivers that contribute to the city's structural imbalance.

The measures currently under consideration may help Berkeley navigate the next budget cycle. However, they do little to address the underlying forces that continue to generate recurring deficits.

A structural deficit ultimately demands structural solutions. The question Berkeley residents should be asking is whether city leaders are prepared to have that conversation before circumstances force it upon them.

Will The Berkeley Ferry Plan Strain Regional Transit Funding?

The City of Berkeley is proposing to replace the closed Berkeley Pier with a new 1,080-foot pier, a 400-foot breakwater, and associated ferry boarding infrastructure. The project also includes plans for up to 450 new parking spaces. Proposed ferry service would connect the site to the San Francisco Ferry Building, with potential future service to Larkspur. Current preliminary cost estimates range from $103 million to $122 million, although some public comments have noted the potential for much higher costs as site remediation and construction advance.

4/10 update: We received the following information from a reader:

The EIR does not include the costs of ferry acquisition I obtained them through a Public Records Act request. Ferry cost are very high, $38 million in 2021 and Berkeley is proposing a new electric fleet with unknown costs. Adding these capital costs brings the initial project cost to approximately $170 million.  The next round of estimates will certainly be higher.

The City has released a Draft Environmental Impact Report (EIR) for public review, and is inviting comments.

WOM Berkeley has evaluated the document with particular attention to the project’s impact on the region’s broader public transportation system. A well-functioning transit network is essential to supporting economic vitality, reducing greenhouse gas emissions, alleviating congestion, and improving overall quality of life.

At the same time, the regional transit system is facing significant fiscal challenges. Recent developments include:

• A $590 million emergency loan to sustain ongoing transit operations

• Bay Area Rapid Transit projecting a $350–$400 million structural deficit, with the possibility of substantial service reductions

• AC Transit projecting a $74 million deficit in fiscal year 2026–27

Within this context, key considerations for the proposed Berkeley ferry include the project’s capital costs, its anticipated operating subsidies, and its potential effects on ridership and revenue across existing transit providers, including BART, AC Transit, and established ferry services. These factors are important in evaluating how the project fits within broader regional transportation priorities and funding constraints. Such an assessment is missing from the Draft EIR, and should be addressed in the final document.

Detailed comments on the Draft EIR are available here: WOM EIR Comments – Berkeley Ferry Project.

If you share our concerns, please communicate them to city officials by April 28, 2026. All the information is here.

Liza McNulty, PE, Project Manager  
Parks, Recreation & Waterfront Department  
2180 Milvia Street, 3rd Floor  
Berkeley, CA 94704  
Email: lmcnulty@berkeleyca.gov

A reader provided the following info-graphic; it is intended ot point out there is a much less expensive alternative to the $122 million peir. 

The Public Bank Measure: Should Berkeley Homes and Businesses Subsidize Risky Loans for Everyone Else in the East Bay?

You may have recently been asked to support the so-called “Public Bank” measure. Here’s what the measure actually does: it imposes a new parcel tax on Berkeley homes and businesses—while authorizing a yet-to-be-approved bank to spend the money anywhere it chooses in the East Bay.

In short, Berkeley taxpayers would underwrite high-risk loans that may benefit other cities, all while driving up housing and business costs here at home. Ironically, the measure claims to help small businesses even as it imposes a 33% surcharge on non-residential properties—hitting struggling Berkeley businesses to fund ventures outside the city proper.

A Tax First. A Bank? Maybe—Later

Since 2019, Public Bank-tax proponents have sought an “initial” $40 million investment from Oakland, Berkeley, Richmond, and Alameda County to launch a Public Bank. In 2024, the Berkeley City Council approved $50,000 for a "Viability Study” to determine what capitalization would require. That report has not been publicly released (to the best of our knowledge), so we have requested a copy. City staff have concluded that a Public Bank would demand a “huge investment”—a risky proposition given Berkeley’s $28 million structural deficit.

Undeterred, Bank proponents are now pushing a ballot measure to impose a tax on Berkeley residents and businesses for up to eight years before a single loan is ever made.

If the Bank does not secure authorization to conduct business by or before June 30, 2033, the special fund may be used to offer loans which support affordable housing, green energy/infrastructure, and/or small businesses until such authorization has been secured, consistent with this Chapter. [Section 7.03.010 F]

In other words: Tax immediately. Structure later. Delay business activity until maybe  2033.

Mandatory Tax Increases….Forever

Don’t be fooled by the introductory tax rate. Like a credit card with a hidden interest spike, the measure mandates annual parcel tax increases. Each May, the City Council must raise the prior year’s rate by the greater of Bay Area cost-of-living growth or state per capita income growth. In 2025, this formula resulted in parcel tax increases of 6.44%. In periods of high inflation, the increase could exceed 10%. Council would have no discretion to stop the escalator— it is guaranteed in the language of the tax measure. The Public Bank is not.

Annually in May, the City Council shall increase the previous year's rate by up to the greater of the cost of living in the immediate San Francisco Bay Area or per capita personal income growth in the state. [Section 7.03.020 B]

Berkeley Subsidizing Risky Loans Anywhere in the East Bay

One of the most disturbing aspects of this measure is that there is no requirement that funds be spent in Berkeley. Because the bank does not yet exist, its eventual service area is unknown. A modicum of assurance to taxpayers would be a provision that guarantees a minimum percentage of subsidies paid by Berkeley taxpayers would be loaned within Berkeley. However, no such a provision exists. 

High-Risk Lending Rejected by Other Progressive Jurisdictions

Proponents of the Public Bank measure insist Berkeley property taxpayers should subsidize regional business startups because big banks deem such loans as “unprofitable or risky.” However, this measure will prioritize extremely high risk ventures:

 

• Businesses too small to secure traditional financing, 

• Startups,

• Any operation the Bank’s management believes “can grow and thrive with loan support.”

These loans are extremely risky. Nationally, roughly half of all startups fail within five years. The Bay Area’s costly environment makes the failure rate even higher. Adding a 33% surcharge to Berkeley businesses only increases financial strain locally—while subsidizing risky ventures in other cities. Further, management only needs to "believe" a business "can grow and thrive" as opposed to making an affirmative financial determination that the enterprise is viable.

Massachusetts rejected a Public Bank at the state level citing these exact concerns: the high costs, risks, and unclear benefits including a significant initial investment of capital by taxpayers.

A Redundant “Solution” in Search of a Problem

Existing mission-driven banks and credit unions already serve small businesses and nonprofits without taxpayer subsidies. The Public Bank measure would create a subsidized entity competing with these local lenders.

Besides small business, the parcel tax subsidies may be used to finance housing and green energy infrastructure. However, the state already operates the California Infrastructure and Economic Development Bank (IBank).  IBank has financed over $56 Billion in energy, infrastructure, and housing.

From Dubious Economics to Nonsensical Gaslighting

These are undeniably difficult times (as we have previously noted), with federal cuts to health care, education, and social support hitting Berkeley hard—including reductions to social safety nets, and funding for UC Berkeley and the National Labs. Bank proponents are using these hardships to justify yet another local tax—appealing to emotion and identity politics rather than fiscal sense. A Public Bank cannot replace federal funding for essential services and “provide local resilience.” Please, stop the gaslighting.

At a time when the federal government has made many sudden grant cancellations, a public bank can provide local resilience to changes in federal funding flows or from federal government shutdowns. [section 2: I]

To the proponents of the Public Bank tax, please explain under what existing conditions would bank loans be a substitute for federal funding for health services and research?

The Bottom Line

This measure asks Berkeley homeowners and businesses to:

• Fund a bank that does not yet exist

• Approve a permanent parcel tax

• Accept automatic annual increases pegged to the highest inflator

• Subsidize high-risk regional lending

• Receive no guarantee that funds stay in Berkeley (100% could be spent elsewhere in the East Bay such as Richmond or Oakland)

Berkeley faces real fiscal challenges. Layering a permanent, automatically escalating tax onto residents and small businesses to finance a speculative regional bank will not result in fiscal resilience.

In fact, a Public Bank would be a  long-term financial gamble—with Berkeley taxpayers holding all the risk. 

Measure L–Scale Borrowing Is Back: Councilmember Taplin’s “Bonds Forever” Proposed Policy

Last August, we warned Berkeley residents about Councilmember Terry Taplin’s proposed Bonds Forever policy. Tomorrow at 5:00 PM, City Council will vote on whether to make this policy a top staff priority (Item #4). Bonds Forever would institutionalize a cycle of issuing $250–$300 million in general obligation bonds every six years—locking Berkeley into permanent, rolling debt.

For a typical 30-year municipal bond, taxpayers pay $1.60–$2.00 for every $1.00 borrowed once interest is included. At that rate, Taplin’s proposal could obligate Berkeley taxpayers  up to $1.2 billion in total repayment within just six years—a figure strikingly similar to the spending proposed in the failed Measure L, 2022.

This is not fiscal reform. It is deficit financing on autopilot that will overburden existing taxpayers and put middle-class housing opportunities further out of reach  Berkeleyans deserve better.

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Call to Action: Contact Your Councilmember Today

council@berkeleyca.gov

Subject: Reject Item #4 – Taplin’s “Bonds Forever” Policy

Dear Councilmember,

I urge you to reject Item #4 (DMND0004232), Taplin’s “Bonds Forever” policy, from the list of prioritized staff referrals.

Institutionalizing massive, recurring debt is not a solution to Berkeley’s structural budget deficit. The City should first bring ongoing expenditures in line with recurring revenues before taking on new long-term obligations.

Normalizing deficit financing through permanent bond issuance is fiscally irresponsible and putting middle class housing further out of reach. Please vote no on referring this policy to staff.

Sincerely,

Tuesday, February 10, 2026

5:00 PM

Action Calendar – New Business

1.-2026 City Council Referral Prioritization Results Using Re-Weighted Range Voting (RRV)

Financial Implications: None