It Shouldn't be a Surprise: City of Alameda Facing Budget Gap

Budget cuts are coming to the .

The city had a $73 million general fund budget for the year 2010-11, and was forecast to have a balanced budget of $69 million in 2011-12. 

But, says Alameda Controller Fred Marsh, the next five years will bring cuts, largely because of a rise in costs for health care and employee retirement benefits.

“We're forecasting each year a deficit of $6 to $8 million dollars,” said Marsh, of his budget projections for the next half decade. His figures presume no salary increases through 2015-16, a two to three percent increase in non-personnel costs for inflation, and continued slow growth of revenue, the biggest source of which is property tax revenue.

Marsh factored in the rising costs of health insurance into his projections, estimating a 14 percent annual increase. "Our health insurance rate increases have averaged from upper single digits to mid- to upper-teens," he said.

Another key factor in the budget gap is the growing demands of funding retirement, particularly for police officers and firefighters who are eligible to retire earlier (at 50) and with larger pensions and better health care benefits then other city employees. 

“We want to let everyone know the problem because we didn’t want to get to May and say here’s a budget and please adopt it,” Acting City Manager Lisa Goldman told the City Council. “There are going to be some difficult decisions for all of us and, ultimately, the council needs to approve them when we bring back a budget. We’re looking at ongoing and one-time fixes.”

“By far the biggest portion of the general fund’s budget is public safety,” said Marsh. “Together police and fire represent about 69 percent of the general fund’s budget.”

The percentage of the general fund dollars that go to support public safety costs rises to 75 or 80 percent of the general fund, said City Treasurer Kevin Kennedy, when you factor in health and pension benefits for retirees. 

"I hate to bring up Vallejo," he told council Tuesday night after the controller's budget report, "but based on this information that's the trajectory we're on."

The City of Vallejo filed for bankruptcy in 2008, and has been in fiscal turmoil since. 

Kennedy served on Alameda's Fiscal Sustainability Committee in 2008, and said many of the issues raised then, like how to pay for the pensions and health care costs of retirees, remain today. 

“I’m feeling some sadness, some fear, and to be honest with you a lot of frustration right now," he told council in an impassioned presentation. "You saw this stuff two years ago; this isn't new."

Kennedy warned council that bankruptcy is around the corner if the city doesn't change direction. "You're not dealing with a unique problem," he said, "this isn't something our city managed to create when our city was sailing alone."

Other cities face the same spiraling costs and revenue slowdown, he said. "But," said Kennedy, "we are unique in not dealing with it."

Currently, public safety workers can retire at 50 and receive 3 percent of their salary in pension for each year worked. They also received comprehensive health care benefits in retirement for themselves and their families. All other employees are eligible to retire at 55, with 2 percent of their salary in pension for each year worked and limited coverage for health care.

City Auditor Kevin Kearney said the time to renegotiate how city employees are compensated is now. "If you compare their situation to people who are in the private sector, or unemployed people with really nice educations who don't have any jobs, a 10 percent cut is not going to be bad," he said.

"The party is over," Kearney said.

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