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

WOM 2026 Issue Focus: Berkeley's Fiscal Crisis and Reckoning

Our country is experiencing an indescribable period in its almost 250-year history.  But despite these profoundly difficult times, WOM Berkeley’s work continues.  We strongly believe our mission helps strengthen the bonds in our community by providing important and timely information on the City’s financial outlook that you can trust.

Another year has passed without meaningful action to address the city’s structural budget deficit. Instead, City Council continues to mischaracterize the situation as a “revenue problem” rather than an "expenditure problem."

After approving a record tax increase in 2025, Councilmembers and their allies are already lining up a new round of sales, parcel taxes and bond measures. This approach ignores a well-documented reality: Berkeley operates one of the largest and most expensive city governments in California.

Rather than confront this structural imbalance, City Council’s default response has been to impose ever-higher costs on residents—without reform, prioritization, or accountability. This path is unsustainable. The structural deficit for this fiscal year is approximately $30 million in direct costs and millions more in unfunded liabilities. 

Given this reality, in 2026 we will focus on three core areas:

1. Protect affordability for Berkeley residents by stabilizing property taxes. Parcel taxes in Berkeley have been rising at an alarming rate that threatens housing stability for all but the wealthiest homeowners. In 2024 alone, Council championed two new parcel taxes and substantial increases in two existing assessments, resulting in a tax increase of as much as 25-30% for some residents. These increases present a challenge for residents’ housing budgets that are already strained due to inflation and increases in costs for utilities, trash collection, etc. The City should live within its means, just as residents have to. Therefore, WOM Berkeley will advocate for:

1. Avoiding new taxes or fees for expansive programs and focus on essential services that are typically under the purview of local government. City council members have already endorsed new parcel taxes to extend public subsidies to private organizations. Others have suggested a sales tax increase and new borrowing.

2. Limit total cumulative annual increases to changes in the Consumer Price Index.

3. Document, with public input and comment, any annual percentage increases on existing taxes. 

4. Showing appreciation to Council members when they do something we support.

2. Increase the cost effectiveness and productivity of city programs and services. Berkeley spends more per resident on government services than other cities in the East Bay and is among the highest in the state.  Yet, Berkeley’s government performance, to the extend it can be evaluated, appears to be lagging given the excessive costs. This imbalance is especially evident in the long-term degradation of streets, vital infrastructure and failing homeless services. Furthermore, Berkeley has duplicative services e.g. the public health department duplicates the services provided by the county. WOM Berkeley will advocate for:

1. Performance metrics for city services and benchmarking against peer cities. 

2. Prioritizing services and identifying cuts to address the structural budget deficit. 

3. Reducing redundancy across city departments and also in contracts with non-profit organizations. 

4. Financial transparency and accountability of programs and services (see next item).

3. Increase transparency and public engagement on taxes and spending. For example, tax increases and other fees should never be passed on the Consent Calendar. Such increases should be considered as action items with the financial rationale for any increase provided. WOM Berkeley will advocate for:

1. New taxes or fees to be action items with the supporting rational and public input.

2. Publicly accessible dashboard and quarterly or semi-annual reporting of performance metrics for city services.

Call to Action & Our Promise to You:

• We will provide more frequent email calls to action on agenda items that impact the issues above.

• WOM will reach out to other like-minded community groups in Berkeley to develop relationships and collaborate on these issues.  

• We will invite more guest contributions to support our outreach and education efforts especially on important topics outside our core areas.

Finally, we would like to acknowledge the recent contributions of Councilmember Brent Blackaby (District 6) and City Auditor, Jenny Wong.  In December 2025, Councilmember Blackaby introduced an item entitled “Setting Measurable Goals and Metrics for Key City Priorities” and last week, Jenny Wong released an audit report on “Measuring Performance in the City of Berkeley.”  Such efforts are a step in the right direction for increasing transparency and enabling informed public engagement.