Berkeley City Council
April 11, 2023

Lorin Station 3253-3269 Adeline
Street
South Berkeley
Neighborhood
Development
Corporation (SBNDC)
14 affordable units, including 5 one-
bedrooms, 7 two-bedrooms, and 2
three-bedrooms
14 60% AMI $730,742 CDBG Renovation Predevelopment/
Pending renovation
Rosewood Manor 1615 Russell
Street SBNDC
35 affordable units, including 8 one-
bedrooms, 21 two-bedrooms, and 6
three-bedroom apartments
35 60% AMI $1,792,491 CDBG, HTF Renovation Predevelopment/ Pending renovation
Golden Bear Homes - Homekey
Project
1620 San Pablo
Ave
Memar Properties and
Bay Area Community
Services (BACS)
Acquisition of the Golden Bear Inn
to be converted to permanent
supportive housing under the
State's Homekey Program
44 30% AMI $8,463,535 PLHA, Measure P Acquisition / Renovation Predevelopment/ Pending renovation
Stuart Street Apartments at McGee
Avenue Baptist Church
1640/1638 Stuart
St
Bay Area Community
Land Trust (BACLT)
renovation of a vacant 8-unit
property on church-owned site 8 80% AMI $2,002,500 $2,002,500 U1 Acquisition / Renovation Under Construction Solano Ave. Apartments 1685 Solano Ave BACLT acquisition and renovation of a 13- unit, partially occupied property 13 80% AMI $1,400,000 $3,900,000 U1, HTF Acquisition / Renovation Under Construction Supportive Housing in People's Park 2556 Haste Street
Resources for
Community
Development (RCD)
119 total units with 62 units set
aside for formerly homeless
households.
119 10-50% AMI $14,359,593 TBD New Construction Acquisition / Predevelopment
St. Paul Terrace 2024 Ashby
Avenue
Community Housing
Development
Corporation (CHDC)
49 affordable units, including 11
studios, 6 one-bedrooms and 17
two-bedrooms, and 15 three-
bedrooms.
50 30-60% AMI $12,250,000 TBD New Construction Predevelopment Ephesians Legacy Court 1708 Harmon
Avenue CHDC 79 one-bedroom units. 80 30-60% AMI $3,556,400 TBD New Construction Predevelopment 972 $111,379303 $13,114,505 $198,198,864
4 General Funds generated pursuant to Measure U1
5 Funding Reservation that the City Council has approved from currently availble affordable housing funds and from forward reservations of up to $17 million from the third issuance of Measure O bonds and $2.5 million in FY2023 general funds generated pursuant to Measure U1 6 Funding Prioritization by City Council priotitizing future housing funds (including but not limited to HTF and Measure O funds) FR5
FR
FP6
1 total units, including managers' units
2 committed = in contract, and reserved = set aside for a particular project 3 the final mix of funds is determined at loan closing

Susan Wengraf
Councilmember District 6
2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7160 ● TDD: (510) 981-6903 ● Fax: (510) 981-7166 E-Mail: [email protected]

CONSENT CALENDAR
April 11, 2023
To: Honorable Mayor and Members of the City Council
From: Councilmember Wengraf
Subject: Budget Referral: $30,000 for Yield Signs at Two Unmarked Intersections

RECOMMENDATION
In support of the City’s Pedestrian Plan with a vision that, “Berkeley is a model walkable city where traveling on foot or with an assistive device is safe, comfortable, and convenient for people of all races, ethnicities, incomes, ages, and abilities,” refer to the Fiscal Year 2024 Budget Process an allocation of $30,000 to install “YIELD” signs at two unmarked intersections at Shasta and Queens and Quail and Queens.

FINANCIAL IMPLICATIONS
$30,000

BACKGROUND
In recent years, hills streets have experienced an increase in traffic volume as navigation apps send vehicles through residential streets in search of the fastest route.

There are no sidewalks along the narrow and curvy roads that lead to the intersections at Shasta Road & Queens Road and Quail Avenue & Queens Road.

Pedestrians, both elderly and young, fear for their lives as they walk across the intersections, where roads meet without any traffic control signage. “YIELD” signs installed at these two intersections will warn drivers that they must slow down and yield the right-of-way to pedestrians and vehicles that are approaching from another direction.

ENVIRONMENTAL SUSTAINABILITY
No direct impact

CONTACT PERSON
Councilmember Wengraf Council District 6 510-981-7160

Susan Wengraf
Councilmember District 6
2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7160 ● TDD: (510) 981-6903 ● Fax: (510) 981-7166 E-Mail: [email protected]

CONSENT CALENDAR
April 11, 2023
To: Honorable Mayor and Members of the City Council
From: Councilmember Wengraf (author) Councilmember Hahn, Councilmember Humbert, and Councilmember Taplin (co-sponsors)
Subject: Budget Referral: $150,000 for Handrails, Lights and Signage for City Pedestrian Path Network

RECOMMENDATION
In support of the City’s goals as stated in the “General Plan,” “Local Hazard Mitigation Plan,” “Pedestrian Plan,” and “Community Wildfire Protection Plan”, refer to the Fiscal Year 2024 Budget Process an allocation of $150,000 for the installation of lighting, handrails and signage on paths deemed most critical for safe evacuation throughout Berkeley.

FINANCIAL IMPLICATIONS
$150,000

BACKGROUND
The City of Berkeley is home to a system of more than 130 pedestrian paths, most of which were originally built into our hillsides as short-cuts to access transportation and commerce. However, today they also serve as a critical element and key resource in our disaster evacuation strategy, providing routes for access and egress for people threatened by both wildfire and earthquake and for first responders and other emergency personnel.

It is critical to have a safe, well-maintained pathway system. Most of the paths have no lighting or handrails, making them a treacherous and dangerous option for pedestrians fleeing a threat, on foot. Installing lighting and handrails and signage identifying the path as an evacuation route would make them a safer option for use in the event they need to be used in an emergency.

The importance of the City’s pedestrian pathway network is acknowledged in many City documents:

Budget Referral: $150,000 for Pedestrian Path Improvements CONSENT CALENDAR April 11, 2023

The 2019 Local Hazard Mitigation Plan states,
“In the city’s many steep neighborhoods with winding roads, these paths take the shortest, most direct routes, mimicking city block grids that do not exist. In addition to producing a community recreation asset, these pathways can assist evacuation and firefighting efforts in the hills. In preparedness outreach, the City instructs community members to always be ready to evacuate without a car and to be aware of the locations of developed paths that may reduce evacuation distance. However, because developed pathway conditions vary widely from those with concrete steps and railings to those with wooden steps with no railings, these paths may not be good options for evacuees with mobility issues or low vision. As indicated on the map, there are many small paths in the Berkeley hills that can help with fire evacuation and firefighting efforts.” The Draft Community Wildfire Protection Plan states:
“Ensure that all public pathways are maintained to provide safe and accessible pedestrian evacuation routes from the hill areas.

The General Plan, Policy T-28 B states:
“Maintain and improve pedestrian pathways throughout the City that are dedicated for public use and provide alternatives to the streets in case of emergency evacuation.” The General Plan, Policy T-52D states:
“Continue to make repairs and safety improvements on public paths and restore unimproved paths.”
For more than twenty years, the Berkeley Path Wanderers Association, a group of dedicated volunteers, have donated their labor to help the City of Berkeley maintain the pathway network, clearing vegetation and constructing new useable routes and making essential upgrades to the existing path system. They have been an invaluable partner in the shared goal of restoration and improvements to our path network and have consistently and conscientiously worked collaboratively with our Public Works Department. The City can leverage their contribution by working together with the Berkeley Path Wanderers to improve the conditions of the paths.

ENVIRONMENTAL SUSTAINABILITY
Pedestrian Pathway improvements are in keeping with our goals for environmental sustainability.

CONTACT PERSON
Councilmember Wengraf Council District 6 510-981-7160

2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7170 ● TDD: (510) 981-6903 ● E-Mail:

[email protected]

CONSENT CALENDAR
April 11, 2023
To: Honorable Mayor and Members of the City Council
From: Councilmember Rigel Robinson (Author), Mayor Jesse Arreguin (Co- Author), Councilmember Kate Harrison (Co-Sponsor), Councilmember Sophie Hahn (Co-Sponsor)
Subject: Approval of the Public Bank East Bay Viability Study

RECOMMENDATION
Refer to the Budget & Finance Policy Subcommittee to review and discuss the Public Bank East Bay Viability Study and consider the following recommendations for the full Council:
(1) Adopt a resolution formally adopting the viability study (2) Adopt a resolution of intention to form the Public Bank East Bay alongside Oakland & Richmond
(3) Refer to the City Manager to coordinate with the Friends of the Public Bank of the East Bay and the staff of the cities of Oakland and Richmond on the development of a business plan for the Public Bank of the East Bay, or designate the appropriate staff to do so
(4) Refer to the City Manager to engage an independent consultant with expertise in banking operations and financing to advise city staff as they coordinate with the Friends of the Public Bank East Bay and participating jurisdictions in the production of a business plan for a public bank

POLICY COMMITTEE RECOMMENDATION
On March 9, 2023, the Budget & Finance Committee adopted the following action:

M/S/C (Arreguín/Harrison) to send the item to Council with a positive recommendation.

Vote: Ayes – Harrison, Arreguín; Noes – None; Abstain – None; Absent – Kesarwani.

BACKGROUND
Public Bank East Bay seeks to establish a publicly operated bank—the Public Bank East Bay (PBEB)—serving the East Bay and prioritizing social equity and environmental stewardship above mere profits.1 PBEB would operate as an alternative to—and alongside—the private banking system. It would allow individuals, businesses, and 1 “Vision & Values — Public Bank East Bay.” n.d. Public Bank East Bay. Accessed January 19, 2023. https://publicbankeastbay.org/vision.

Public Bank East Bay CONSENT CALENDAR April 11, 2023

other entities to access standard banking services. Importantly, PBEB would prioritize access for individuals, economic sectors, and municipalities that have been traditionally underserved or exploited by the financial industry.

In 2019, Governor Gavin Newsom signed AB 857, providing guidelines for establishing public banks in California.2 AB 857 makes California the first state in the nation to legalize public sector banks.

PBEB advocates prepared a Viability Study in 2022 that meets the requirements set forth in AB 857. These include proving the purpose of the bank, analyzing costs, identifying the amount of initial capital required to establish the bank, financial projections for the first five years of operation, proving the PBEB complies with the California State Constitution, and how regulations would be implemented to prevent corruption.3 The Viability Study has already been approved by the Richmond City Council4 and the Oakland City Council.5

FINANCIAL IMPLICATIONS
Adoption of these recommendations has no general fund impact.

The development of the public bank, however, will be a significant financial endeavor. It is the objective of the Business Plan to fully assess the financial benefits and risks of forming the Public Bank East Bay.

This resolution does not appropriate or commit any City of Berkeley funds to the establishment of the PBEB, or to any organization. If a consultant is engaged, Finance has indicated that these costs, estimated at $50,000, can be accounted for in the existing Finance department budget.

ENVIRONMENTAL SUSTAINABILITY
None.

CONTACT PERSON
Councilmember Rigel Robinson, (510) 981-7170
Sam Greenberg, Legislative Assistant
2 Sgourous, Tom. 2022. “Public Bank East Bay Viability Study.” Public Bank East Bay. https://static1.squarespace.com/static/5ee14314979f2e18b9b6ed03/t/622a351f48637e3569cc3fcd/16469 33281581/PBEB+Viability+Study+March+2022.pdf.
3 “Public Bank East Bay Viability Study.” Page 34
4 “Richmond Approves Viability Study.” 2022. Public Bank East Bay. https://publicbankeastbay.org/news/0vitc9jw0cyug7jqkvub64mbaky3qb-6axls-mm2f3-twl3l. 5 “Meeting Minutes: Concurrent Meeting of the Oakland Redevelopment Successor Agency and the City Council.” 2022. City of Oakland.
https://oakland.legistar.com/View.ashx?M=M&ID=1001259&GUID=57EC77BF-AC2B-4E18- 837E-6427F9DC88AC. Page 20

Public Bank East Bay CONSENT CALENDAR April 11, 2023

Attachments:
1: Resolution
2: Resolution
3: Public Bank East Bay Viability Study

Public Bank East Bay CONSENT CALENDAR April 11, 2023

RESOLUTION NO. ##,###-N.S.

RESOLUTION OF INTENTION TO FORM THE PUBLIC BANK EAST BAY WITH THE

CITY OF BERKELEY AS A FOUNDING MEMBER ALONG WITH THE CITIES OF

OAKLAND AND RICHMOND
WHEREAS, public banks are financial institutions that are owned by public agencies such as cities and counties and can serve as a tool to invest, lend, and provide banking services to local communities that are often left out of financial opportunities from larger firms; and
WHEREAS, the City of Berkeley began formally assessing the feasibility of establishing a public bank with a $25,000 allocation made in 2017 to support the development of a feasibility study for the Public Bank of the East Bay; and WHEREAS, a public bank can serve the residents of Berkeley through investment and lending activities that support small local businesses, affordable housing production, climate resilience, infrastructure projects and more; and WHEREAS, the City of Berkeley intends to be one of the founding owners of the Public Bank East Bay; and
WHEREAS, the other proposed founding owners of the Public Bank East Bay are the cities of Oakland and Richmond; and
WHEREAS, the County of Alameda is proposed to be a non-founding owner of the Public Bank East Bay that will take an ownership stake shortly after the Public Bank East Bay's licensing by the State; and
WHEREAS, the Public Bank East Bay's proposed governance plan requires that each member city designate one councilmember to sit on the Public Bank East Bay's Board of Directors; and
WHEREAS, the California Public Banking Act further mandates that "a motion to move forward with an application for a public banking charter shall be approved by a majority vote of the governing body at a public meeting";
now, therefore, be it RESOLVED: That the City of Berkeley intends to be a founding member of the Public Bank East Bay as part of the application for a public banking charter; and be it FURTHER RESOLVED: That the Berkeley City Council requests that the Alameda County Supervisors commit to joining the Public Bank East Bay as a full voting member immediately upon California state approval of the Public Bank East Bay's charter application;

Public Bank East Bay CONSENT CALENDAR April 11, 2023

and be it FURTHER RESOLVED: That the City Manager or designee is authorized to direct City staff to provide the necessary financial and other details to assist the Friends of the Public Bank East Bay in the production of a business plan for the ongoing operation of a public bank and return to the City Council with a report outlining anticipated capital contributions and any necessary budgetary amendments along with a final draft public bank business plan for approval;
and be it FURTHER RESOLVED: That the City Manager or designee is authorized to review and propose the probable terms of any articles of incorporation, operating agreements, and other nonprofit public benefit corporation documents or nonprofit mutual benefit corporation documents that may be required by California Government Code Section 57600 et seq., which may be finally negotiated and executed upon the City Council’s adoption of the business plan;
and be it FURTHER RESOLVED: That the Berkeley City Council designates Councilmember Rigel Robinson as a representative to the Friends of the Public Bank East Bay to help guide the Public Bank East Bay’s opening process and to serve as Berkeley’s initial representative on the Public Bank East Bay’s Board of Directors; and be it FURTHER RESOLVED: That all the aforementioned charter(s), agreements, and articles shall be approved as to form and legality by the Office of the City Attorney and placed on file in the Office of the City Clerk;
and be it FURTHER RESOLVED: That this Resolution be conveyed immediately to the City Councils of Oakland and Richmond and to the Alameda County Board of Supervisors.

Public Bank East Bay CONSENT CALENDAR April 11, 2023

RESOLUTION NO. ##,###-N.S.

RESOLUTION APPROVING THE PUBLIC BANK EAST BAY VIABILITY STUDY WHEREAS, public banks are financial institutions that are owned by public agencies such as cities and counties and can serve as a tool to invest, lend, and provide banking services to local communities that are often left out of financial opportunities from larger firms; and
WHEREAS, a public bank can serve the residents of Berkeley through investment and lending activities that support small local businesses, affordable housing production, climate resilience, infrastructure projects, and more; and WHEREAS, the City of Berkeley intends to be one of the founding owners of the Public Bank East Bay; and
WHEREAS, the other proposed founding owners of the Public Bank East Bay are the cities of Oakland and Richmond; and
WHEREAS, the County of Alameda is proposed to be a non-founding owner of the Public Bank East Bay that will take an ownership stake shortly after the Public Bank East Bay's licensing by the State; and
WHEREAS, the California Public Banking Act mandates that "a local agency shall conduct a study to assess the viability of the proposed public bank," hereafter referred to as the Viability Study; and
WHEREAS, the California Public Banking Act mandates that "The study required shall be presented to and approved by the governing body of the local agency;" and WHEREAS, the City of Richmond approved the Viability Study on April 5, 2022; and WHEREAS, the City of Oakland approved the Viability Study on December 20, 2022; and WHEREAS, the 2022 Public Bank East Bay Viability Study proposes lending in four main areas: affordable housing, small businesses, electrification/greening, and refinancing municipal bonds, and concludes that the Public Bank East Bay will be fiscally viable; now, therefore, be it RESOLVED: That the Berkeley City Council approves the Public Bank East Bay Viability Study;
and be it FURTHER RESOLVED: That this Resolution be conveyed immediately to the City Councils of Oakland and Richmond and to the Alameda County Board of Supervisors.

Public Bank East Bay Viability Study
Prepared by Tom Sgouros
Commissioned by Friends of the Public Ban k East Bay
Mar ch 2022

1 TABLE OF CONTENTS
Executive Summary 3
Introduction 4
Why The East Bay Needs a Public Bank 4
Mission Statement 6
What Will PBEB Do? 7
Programs 8
Housing 8
Affordable housing rehabilitation and other housing finance options 9 Climate 10
Electrification of residential buildings 10
Other green energy finance 12
Business lending 13
Municipal finance 17
Financing 18
Capitalization 18
Funding 19
Expenses 20
Expansion and growth 20
Financial Projections 22
Staffing 27
Housing 27
Climate 27
Small business lending 27
Municipal finance 27
Treasury operations 27
Data processing/IT 28
Compliance officer 28
Pre-Opening Budget 28
Risk analysis 29

2 Housing 30
Electrification lending 30
Business 30
Municipal lending 31
Liquidity risk 31
Governance 32
Compliance with AB 857 Requirements 34
Appendix A: Governance Plan 36
I. Mission Statement 36
II. Board of Directors 36
Board Composition 36
Terms and Removal of Directors 37
Relationship to Bank management, staff, and city and county governments 37 Compensation 38
Frequency of Meetings 38
Public Access 38
Appendix B: Legal Analysis 40
Introduction 40
Section 6, Article XVI of the California Constitution 41 Section 6, Article XVI of the California Constitution Likely Does Not Apply to AB 857 Public Banks in General 42
Section 6, Article XVI of the California Constitution Likely Does Not Apply to the Proposed Public Bank East Bay’s Structure and Operations 43
44 46
Appendix C: About This Study
Appendix D: Local Community Banks and CDFIs
Appendix E: Next Steps 48
Copyright © 2022, Friends of the Public Bank East Bay
www.publicbankeastbay.org
[email protected]

3 Executive Summary
This Viability Study demonstrates that the Public Bank East Bay (“PBEB”), a cooperative venture among the cities of Oakland, Berkeley, and Richmond and Alameda County, is a viable entity which can:
• achieve fiscal stability within the first three years; • provide loan support to underserved sectors of the local economy; • address local infrastructure needs;
• reduce local government dependency on Wall Street banks; • decrease local fossil fuel and other harmful investments; • partner with local financial institutions to the economic and social benefit of all; • mitigate economic inequity in the region;
• serve as a model for public banks around the state and the country.

This Study and the accompanying financial projections show that the PBEB can achieve these goals w
hile operating in a conservative and secure way, minimizing the financial risk to its sponsor governments.

The PBEB will be a low-overhead enterprise, with a small staff to run lending programs in partnership with existing local financial institutions. The lending programs will include:
• making loans to local small businesses, in cooperation with local community development financial institutions (CDFIs) and local banks;
• providing nimble capital to non-profit affordable housing developers for property acquisition, bridge financing, or foreclosure prevention, as well as financing for rehabilitation projects; • extending credit to help the East Bay do its part to ameliorate the climate emergency, financing building electrification as well as small-scale renewable energy installations; • supporting municipal finance, by providing modest credit to the member governments for small projects.

As the Bank grows and adds capacity, it will also be able to provide an alternative to Wall Street banks for cash handling for the member governments. Through careful management of these programs, the PBEB can deliver benefits worth many times the initial investment, and provide a vibrant institution that is a vital part of the East Bay economy for decades to come.

4 Introduction
Why The East Bay Needs a Public Bank
The current national, California, and East Bay financial systems are not meeting the needs of the East Bay. The urgent issues we face include:
• The ongoing climate crisis is inescapable. Localities cannot wait for a paralyzed federal government to deliver, and must find ways to increase local funding for initiatives that will dramatically reduce greenhouse gas emissions and increase availability and affordability of green energy solutions.
• The Bay Area is experiencing a housing crisis of extreme scale, visible along so many major thoroughfares. Quality affordable housing that does not accelerate displacement is desperately needed, and solutions cannot take ten years to ramp up. New local funding, along with streamlining availability of existing funds, is badly needed. • BIPOC small businesses lack funding. Nationally the unmet credit needs among entrepreneurs of color are 15-25% higher than those of white entrepreneurs. 1 • Worker cooperatives, employee-owned firms, community land trusts, and other community- based models of ownership are poised to grow in scope and scale, but they are often unable to access traditional bank funding.

Financing alone cannot solve these problems. However, access to inexpensive capital will inevitably play an essential role in all solutions. A public bank— that directs public assets to solve public problems— can and will be part of a solution that helps participating cities and counties tackle these issues, and more, by adding a component of financial infrastructure to the existing mix.

Responsible and responsive banking of public funds will be an invaluable tool in transforming the current system to one that works for the people who need it. This Study demonstrates that the East Bay region of Northern California can be the home of a stable, productive, and transparent public bank—the Public Bank East Bay— which can help its region address essential structural problems.

Wall Street banks which handle the vast majority of public funds in the East Bay and around the country have consistently placed profits and shareholders over the needs of everyone else. Self-admitted felonies by banks resulted in nearly $2 billion dollars
2 paid in fines and fees over the past 20 years. Additionally, bank policies such as subprime mortgages and financialization led directly to the housing bubble and financial crisis of 2008 that devastated families and communities. People of color disproportionately lost wealth during this crisis. Banks were held accountable trivially if at all in the recovery from the crisis, and continued to play fast and loose with customers’ money. The phantom account scandals at Wells Fargo (where the bank created millions of accounts for customers without their knowledge or consent) demonstrate how bank customers are often at risk from the banks themselves. Wall Street takes people’s money, uses it to gamble in their high-stakes casino, and leaves customers holding the pieces 1 Small Business Survey 2019.
2 https://bettermarkets.org/newsroom/new-report-details-first-time-20-plus-year-crime-spree-six-largest- wall-street-banks/

5 when they lose. Sad experience shows that states and municipalities are equally at risk as customers of private banks.3
Just as online commerce and big-box wholesale stores have decimated local businesses, including hardware, stationery, and book stores, small banks have been driven out of the market by Wall Street banks, or have been bought out or merged into larger banks. This has left banking deserts around the state, including in the East Bay. In 1994, the state had 500 community banks, but by 2017 it had only 1244. While this corporate concentration may have brought convenience for some customers, it has caused pain to many others, in the form of less accessibility, fewer options, higher fees, and greater disconnection of banks from community priorities and control. Moreover, banks do not merely hold money, they do things with it.

The major role of Wall Street banks in funding the fossil-fuel industry underscores the profound mismatch of these banks with the values of our region. Many jurisdictions, including Alameda County, Oakland, Berkeley, and Richmond have voted to divest public funds from fossil fuels, but have been unable to do so, due to their inescapable relationships with Wall Street banks. For example, Alameda County. which has voted to divest. currently has 30% of its funds in banks with heavy fossil fuel investments, including $300 million in JP Morgan Chase alone.

As easy as it is to enumerate the active ways in which the money-center banks harm our lives and our communities, it is just as important to examine what they fail to do. Over the past few decades, more and more bank revenue has been generated by fee income, i.e., direct charges made to bank customers for the service of handling money. This income has increased in importance, because interest income entails risk to the banks in a way that fee income does not. Consequently, bank management has emphasized fees over loans. In practice this has caused the big banks to cut back underwriting all but the most standard loans, eliminating much if not all of their lending risk. Plenty of mortgage credit is available; however, this market is highly controlled, subsidized, and insured by the federal government. Business credit is plentiful for big corporations, especially those large enough to access the bond market. But other market demand—including extending credit to BIPOC - and women-owned small businesses, worker cooperatives and land trusts, innovative green energy initiatives, and climate resilience measures— goes unmet. Even affordable housing, for which oceans of capital are theoretically available from federal, state, and private sources, suffers from a tragic lack of nimble capital that does not take years to approve.
5 The consequences to the nation’s economy have been severe, with bank credit to small businesses shriveling, and rising prices for mundane and low-risk municipal investments.

Transformative financial programs are essential to comprehensive solutions to these problems. By keeping overhead low, partnering with local financial institutions, reinvesting revenue to the business, using inexpensive public monies, and not being bound to reap high profits, public banks can make credit more available and more equitable, underwrite new initiatives, and serve as clearinghouses and 3 Sgouros, T, “Predatory Public Finance”, The Journal of Law and Society, 17:1 (2016), pp 91- 102. https://law.wayne.edu/academics/co-curricular/journal-law-society 4 https://www.bankingstrategist.com/community-banks-number-by-state-and-asset-size 5 Vitally important in a state where approximately 160,000 people are experiencing homelessness on any given day. See 5https://www.usich.gov/homelessness-statistics/ca/

6 conduits for more efficient and restorative uses of public money. Public banks cannot fully address these crises on their own, but public banks are an essential component of addressing them.

In countries around the world, including Germany, Costa Rica, India, Vietnam, and many more, publicly owned banks have helped create and direct new financial tools to serve public needs. The Bank of North Dakota is the only major publicly owned bank in the United States. In its century of existence, it has maintained and strengthened community banks, reduced student loan debt, compensated for the 2008 financial crisis, and equitably distributed federal pandemic relief—and shown substantial financial success while doing so.

The public banking movement is growing around the country. California has led the way with the California Public Banking Act (AB 857), which authorizes the formation of public banks to engage in the lending of public monies under public ownership. This legislation sets out the path for PBEB to open its doors.

Mission Statement
PBEB will invest public monies from participating governmental agencies to meet the needs of local communities. PBEB will seek to return a reasonable, but not excessive, profit to its stakeholders by making economically sustainable loans and providing a high level of service to its partners and stakeholders. It will adhere to the principles of the United Nations Declaration on the Rights of Indigenous People, and will prioritize environmentally regenerative, culturally equitable and participatory practices that reverse discrimination against members of economically and socially marginalized communities.

The Bank’s decisions will be based on five key values:
• Equity: We are committed to a public bank that acknowledges and attempts to relieve the contemporary and historical burdens carried by disenfranchised communities, including low- income communities of color and other marginalized groups. • Social Responsibility: Decisions regarding loan recipients, sponsored projects, and who benefits from PBEB policies will all prioritize investing our money into the wealth and health of local communities and the environment.
• Fiscal Responsibility: As a steward of public money collected by depositing agencies from individuals and businesses in the East Bay, the Bank is committed to compliance with the directives and policies of state and federal regulators. It is equally committed to active and constant attention to managing risk and making fiscally responsible decisions so as to maintain PBEB in a safe and sound condition.
• Accountability: The Bank is accountable to the residents of the East Bay, who have a right to fully transparent explanations of PBEB’s actions and choices. • Democracy: The Bank will be governed using inclusive and participatory processes which consciously and intentionally adhere to the values/principles listed above.

7 What Will PBEB Do?
PBEB’s primary function is to employ public funds to meet public needs. This will entail working with member government agencies (initially the cities of Berkeley, Oakland and Richmond, and the County of Alameda) to gradually redirect tax and fee assets and locally generated funds to:
• increase available capital to the local economy with a focus on affordable and community- controlled housing, small-business and worker ownership lending, green infrastructure projects, and cost-saving funding of municipal bonds.
• support equitable economic development in the region. By prioritizing the least served businesses and by attending to local infrastructure needs, the Bank can provide money to various enterprises and initiatives that are currently neglected, jump-starting needed changes with increased resources.
• manage and invest municipal funds safely and cost-effectively. Safeguards, regulatory oversight and conservative loss reserves will make the Bank a reliable guardian of public funds. • enable local governments to redirect public funds from Wall Street banks. The nation’s big banks invest our money in places that are not only irrelevant to our communities but are actively harmful to them. Those practices cannot change without adequate alternative institutions to manage those dollars.
• harness public funds to invest in public goals. Traditional banking models incentivize decision- makers to prioritize profits above all else. PBEB will remain committed to financial viability, safety and solidity, balancing the essential need to be profitable with its commitment to our region’s social needs and the Bank’s social mandates.
• nimbly, transparently, and democratically modify these goals as local priorities change.

To meet these goals, PBEB will partner with and complement local financial institutions, such as Community Development Financial Institutions (CDFIs), credit unions, and local community banks6.

PBEB will be managed by professionals experienced in banking and community finance, independent of the member county and cities. It will have a strong democratic and multi-stakeholder operational and governance structure, including a Board of Directors, with community members and representatives of the governmental agencies filling a majority of seats. The mission, operations, and decision-making of PBEB will ensure financial viability, as demonstrated in this Study, while prioritizing community value above maximized profit.

A democratically organized Bank with strong community oversight, PBEB will be governed by a Board of 15 people who bring banking and financial expertise along with social and political experience. The Board members will have a varied knowledge base and a shared commitment to representing and meeting the needs of systemically underserved communities – and all East Bay residents. Meetings will be public except for discussion of private customer information, personnel matters and appropriate regulatory issues, and the Bank will hold a highly publicized annual meeting to share results with the community and get feedback on future priorities. The Bank and the Board will also adhere to the highest standards with regards to records accessibility and transparency.

A discussion of governance issues is on p. 35 and a detailed governance plan is included in Appendix A. 6 A strong positive for PBEB which is also required by AB 857

8 Programs
The purpose of the PBEB is to redirect a portion of the cash and investments of its member governments from bonds and CDs issued by Wall Street banks7 to local lending. This study lays out four initial target programs: housing, climate, business lending, and municipal finance. The credit market needs—and the outline of a plan for fulfilling them—are described in the following sections, and referenced in the financial projections.

A rough market analysis was done for each of the four target lines. For housing, climate, and business lending, the analysis included interviews with market participants and review of various reports and studies made on the subject. The review of municipal borrowing added an analysis of public bond documents as filed on the EMMA website of the Municipal Securities Regulation Board.8 Housing
The lack of affordable housing in our country has reached crisis level. According to Alameda County’s 2021 Affordable Housing Needs report,9 52,254 low-income renters do not have access to an affordable home and 71% of extremely low-income households are paying more than half of their income in housing costs. Renters in Alameda County need 2.9 times the minimum wage to afford the average asking rent. The housing crisis has been growing over time as housing construction has slowed10 and has been exacerbated by the Covid-19 pandemic. Over the course of the pandemic, nationally, rents have increased 11.4% in 2021 compared to about a 3% annual increase pre-pandemic.11 The homeownership rate for Black and Hispanic residents stands at 45.1% and 49.3% respectively. For whites, the rate is 73.8%. Moreover, this gap has not changed significantly over the 50 years since the Fair Housing Act. Similar inequities are also found in home ownership by income level.

As is evident in places like the Bay Area, the high cost of housing in many areas— especially those experiencing significant levels of real estate speculation—forces many lower -income families out of established, often better-resourced communities and into concentrated pockets of poverty within the city or in a neighboring jurisdiction.

Lastly, there is evidence of significant generational inequality, with younger Americans unable to accesses homeownership at the same rates as previous generations. This is particularly true for the "millennial generation” (roughly born between 1981 and 1996), which has significantly lower median 7 Over $300M (4.5%) of Alameda County’s portfolio is invested in JP Morgan alone according to its annual reports.
8 https://emma.msrb.com
9 https://chpc.net/resources/alameda-county-housing-need-report-2021/ 10 https://www.nytimes.com/2021/08/10/opinion/housing-crisis-eviction.html 11 Research for this section included interviews with directors and staff at ten of the largest non -profit developers of affordable housing in the service area. This is a $500M per year market, and the demand is still growing.

9 wealth than previous generations did at the same age and high levels of student loan debt. Many millennials are disproportionately burdened by housing costs, and fewer are able to purchase homes.12 Short-term financing for housing development and preservation The goal of increasing the region’s stock of affordable housing will not be reached merely by increasing the amount of available credit. A great deal of credit is available for affordable housing development, but the credit that is available does not always match the credit that is needed. In addition, securing the credit and managing all the other logistical aspects of building an affordable housing development is an arduous and complex process that can take three to five years from the time a property is identified to when the units are move-in ready. A single affordable housing development might rely on over 20 sources of funding.

Unfortunately, though both government and private credit is available in theory, it is difficult or expensive to find credit that can be deployed quickly, which can allow a non-profit developer to act on a property that comes up for sale suddenly, or to participate in the foreclosure or tax sale markets to preserve affordability of properties that come up for sale. Perhaps more important, a housing agency with a flexible and readily-deployed source of capital would also be better equipped to prevent those foreclosures or tax sales, and the cascade of negative impacts that result for the people who lose their homes. Foreclosures can also cause harm to neighborhoods and financial institutions by lowering neighborhood home values. During the pandemic, a moratorium was placed on foreclosure actions, however, that moratorium has been lifted and foreclosures are beginning again.

Housing agencies also frequently require bridge finance, to get a project underway while the longer- term financing is worked out. This tends to be expensive. Offering non-profit housing developers a flexible line of credit will help them obtain the cash they need efficiently, and will allow agencies the flexibility to deploy credit quickly. PBEB will coordinate this program with other financing agencies.

Many of the developers interviewed for this study identified permitting and grants as a major obstacle to building more affordable housing and expressed hopes that as a public bank, PBEB would be in a better position to reach out to local agencies and governments, to help navigate public permits and grants and ensure ongoing municipal support for housing projects, saving money for projects overall.

The credit line will work as credit lines do for individuals, with a credit limit and a repayment schedule for each drawdown of credit based on a 3-5-year amortization of the balance. Many non-profit developers have equity in past developments which can be used to help secure such a credit line, and the acquisitions made with it can also be pledged as security. Participating in the housing market, and the security pledged for this housing credit could allow the PBEB to access the resources of the Federal Home Loan Bank, a potentially valuable source of collateral. This form of credit is a departure for this market, so it can be expected to take a bit longer to build out this component of the Bank’s portfolio.

Affordable housing rehabilitation and other housing finance options Affordable housing rehabilitation is another largely unmet need in the East Bay.13 Many affordable units were built decades ago and are overdue for repairs to their roofs, cabinets, plumbing, electric service, 12 https://thenextsystem.org/learn/stories/revisiting-community-control-land-and-housing-wake-covid-19 13 https://baysfuture.org/time-to-fill-a-crucial-gap-in-affordable-housing-financing/

10 and more. This kind of lending is smaller than new construction or home purchase finance, typically in the tens of thousands per unit, and the terms also tend to be much shorter: in the 5-10 year range, or perhaps 15 for a roof. This is compatible with the strategy of focusing on shorter term loans in the formation stage of the PBEB. Some of the same agencies who might be line-of-credit clients could be partners to take on the underwriting overhead.

Financing Accessory Dwelling Units (ADUs) is another area where traditional housing finance is largely unavailable to meet current and future needs.14 Given the state of the housing market, this demand could be quite substantial and an important component to addressing affordable housing in the East Bay. The referenced study identified over 15,000 parcels where an ADU would be possible, so this has potential to add a substantial amount of housing.

Providing this credit, however, will require substantial underwriting effort, as well as navigating some legal issues, especially concerning the value of existing mortgages on properties where an ADU is proposed. From a policy perspective this is an important area to address, but providing this credit will require an investment in time and expertise beyond what is envisioned at the early stage of the PBEB.

Without an obvious partner to absorb that overhead, this is not covered in this Study and the financials.

It is mentioned here as a fruitful early place to expand PBEB business as the Bank Board and management deem feasible.

Climate
At this late date in the progress of the climate crisis, there is not nearly enough credit available to reduce the carbon footprint of our society. The PBEB can help by focusing funds on important climate goals, like reducing the carbon footprint of our buildings and adding renewable energy production capacity.

Electrification of residential buildings
Buildings generate an estimated 40% of annual global climate emissions, with building operations being responsible for most of those emissions. Though addressing the carbon contribution of individual buildings may seem unimportant, this is not only a vital step towards a low-carbon economy, it is also among the lowest-hanging fruit.15 Multiple plans have been developed in the Bay Area to decarbonize existing buildings. Electrification of new and existing buildings is a critical aspect of these plans. The City of Berkeley’s Existing Building Electrification Strategy recognizes that:
“Beneficial electrification takes this idea further and ensures that electrification results in reduced GHG emissions, more grid resiliency, and lower energy costs for residents. With the availability of renewable electricity associated with Senate Bill (S B) 100 and EBCE, this switch to electrification, if done equitably, opens up the potential for significant benefits including reductions in GHG emissions, improved health and safety, cost savings, and more.”16
14 https://communityinnovation.berkeley.edu/sites/default/files/a_solution_on_the_ground_report_9-27.pdf 15 https://www.rewiringamerica.org/policy/rewiring-communities 16 https://www.cityofberkeley.info/uploadedFiles/Planning_and_Development/Level_3_- _Energy_and_Sustainable_Development/Draft_Berkeley_Existing_Bldg_Electrification_Strategy_20210415.pdf

11 Over 42 cities in California have banned fossil fuel infrastructure such as natural gas heating systems in new construction, however electrifying existing buildings remains a challenge. Retrofitting existing buildings is more costly and complicated than electrifying new buildings. From a fiscal perspective, there is plenty of evidence for long-term savings associated with building electrification. Unfortunately, available and affordable financing of upfront costs is difficult to obtain. PBEB will provide low-cost credit to address this community need.

Providing low-cost electrification loans to residential properties owners will also strengthen local economies by creating an economic boom for local businesses and tradespeople. Electricians, plumbers, and carpenters are just some of the professions that will benefit from the increase in demand for residential home conversions.

Estimates from across the region give a glimpse of the size of the need for financing electrification loans.

In a recent report, the City of Berkeley estimated the average cost of transitioning a residential building to be $30K, with an estimated 32,500 existing residential buildings. The 2020 census for Alameda County counted approximately 625,000 residential housing units (not buildings) which would put the cost of electrification somewhere over $10B.

Compared to many other kinds of credit, retrofit loans are relatively small with terms of five to ten years. Many will be only a few thousand dollars, though some will reach the tens of thousands. To keep the cost of underwriting as low as possible, the assessment of eligibility and approval can be partially automated, with much of the paperwork effort delegated to software run by the plumbers, electricians, and HVAC contractors who will be the customer’s point of contact.

For security, customers can be offered a choice between an unsecured personal loan, repaid via an additional charge on their utility bill17 and a property lien, which might merit a lower rate. An on-bill tariff will also make the lending more responsive to the cost-effectiveness of the proposed improvements instead of the economic resources of the bill payer.

Costa Rica’s BPDC serves as an example of the successful public financing of energy transition.18 There, the public bank financed a large-scale conversion to LED lighting by analyzing the potential cost-savings of the switch and then granting low-interest loans based on those savings. The switch to LED allowed the project sponsor to receive a carbon neutral certification and continues to provide additional cost reductions.

With a substantial push for building electrification, the potential size of loan demand for electrification will be much greater than the PBEB as proposed can accommodate. This can be addressed by carving out some subset of demand for intensive attention, either by geographic area, or perhaps by the type of 17 We are assuming the cooperation of the utility over issues like cash flow and the locus of default risk. These issues have been overcome in several other states and territories, e.g. https://www.myrec.coop/bill -tariff- energy-efficiency-program. California’s AB 841 contains incentives for in-state electric utilities to adopt measures like these, and directs them to obey PUC directives to establish them. https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB841 18 https://www.tni.org/en/publication/how-public-banks-can-help-finance-a-green-and-just-energy- transformation

12 appliance (e.g. loans for batteries, or for heat exchangers). The financial projections indicate the prospective PBEB capacity, and assume that the main problem facing policymakers will be to contain the demand for electrification loans rather than to find borrowers.19 Cooperation from local utilities with either incentives or obligations to improve energy efficiency, in the form of grants and/or paying for some of the work, is not calculated into these projections because it requires substantial negotiation. If this were to be successfully arranged, the scope of this project could grow significantly.

Other green energy finance
Finance is needed, both to increase the green energy supply, and for load-balancing features, like in- house backup batteries, that will allow the existing electrical grid to accommodate that increase in supply without burning fossil fuels. Large solar and other energy projects take time to come online, while smaller projects can be built and installed relatively quickly.

According to the consulting firm Wood Mackenzie, a national goal of 50% renewable energy will require more than a trillion dollars in finance capital.20 California represents 6-7% of the national electricity market,21 and the state’s own goal is even more aggressive, seeking to achieve 60% renewables by 2030 and 100% by 2045.22 The state’s financing needs are thus in the several tens of billions for the next decade, and the East Bay’s share of that is in the range of $3-7B. Obviously not all of that financing falls within the PBEB service area or initial target projects, but any appreciable fraction represents several hundred million in demand for financing, providing a substantial opportunity for the low-cost capital the PBEB can provide.

We recognize the current controversy around home solar policy costs proposed by the California Public Utilities Commission (CPUC). If approved, that will discourage the construction of small renewable installations in the near term,23 however, the larger goal may be expected to prevail over the next 2-4 years unless the state also disavows its renewable energy targets. The financial projections are based on providing credit to small-scale renewable installations with the expectation that, though the details may change substantially based on possible state action, the demand will remain substantial.

Another benefit to focusing on renewable energy installation in partnership with local lending institutions is the potential for funding to be included in upcoming infrastructure legislation and 19 Alternatively, one might use the bond market to supply the lion’s share of lendable funds, and use funding through the public bank as a liquidity reserve for that lending program and to augment the loanable funds.

This would allow the PBEB to meet much more of this demand than is envisioned in this proposal, and reduce the risk to the bondholders, which would result in a lower cost of funds. This would be a substantially different institution than is proposed in this document. 20 Presentation to the American Clean Power Association, December 2020. https://cleanpower.org/wp - content/uploads/2021/02/american-clean-power-renewable-energy-and-infrastucture-policy-analysis.pdf 21 https://www.eia.gov/state/seds/data.php?incfile=/state/seds/sep_fuel/html/fuel_use_es.html&sid=US 22 https://www.ncsl.org/research/energy/renewable-portfolio-standards.aspx 23 https://kesq.com/news/local-news/2021/12/17/residents-heated-over-california-legislators-proposal- to-rollback-solar-incentives/ (accessed 1/26/21)

13 regulation to benefit “green banks.”24 Designating PBEB as a green bank may open up other funding opportunities as state and federal energy policies evolve.

Business lending
The severe lack of access to capital for small businesses, in particular for very small and woman- and BIPOC- owned businesses, is well documented nationwide and in the Bay Area.25 In 2019, the Federal Reserve Bank of Atlanta published a report showing that Hispanic- and Black-owned businesses are less likely to be approved for bank loans and receive less money when they do.26 It estimates that nationally the unmet credit needs among entrepreneurs of color is 15-25% higher than those of white entrepreneurs. These findings were confirmed in a more recent study by the Federal Reserve in 2021.27 In an academic study from 2021 researchers showed that Black-owned businesses received loans that were 50% lower than observationally similar white-owned businesses.28 The racial disparity in small business lending worsened during the pandemic, where Black-owned businesses were more likely to shut down29 and less likely to receive government support through the Paycheck Protection program (PPP).30 An SBA report has shown that in 2020 Black-owned businesses received only 2% of PPP loans while white-owned businesses received 83%.31
This racial disparity in small business lending is structural. A perceived higher risk-level for the part of the population that has been historically excluded from the formal banking sector, the generational impacts of poverty (e.g. entrepreneurs of color often have few assets to pledge as collateral for loans, and less wealthy family networks to tap into for starting a business) as well as a general lack of trust in banking institutions among people of color are some of the factors resulting in the lending discrepancy.

Typically, the loans needed by BIPOC-owned small businesses are too small for commercial banks to earn a profit. The cost to originate and service an individual loan is almost the same for a $25K loan as it is for a multi-million-dollar loan, so Wall Street banks as well as community oriented local banks and credit unions, more often than not choose the larger loan, as they are structurally mandated to fulfill their private shareholders’ expectation for competitive profit rates. Out of $1.1B of commercial loans 24 Clean Energy Finance: Green Banking Strategies for Local Governments (epa.gov) 25 See https://cameonetwork.org/microenterprise-research-policy/ for a rich collection of reports on this topic.
26 Federal Reserve Bank of Atlanta (2019): Small Business Credit Survey. https://www.fedsmallbusiness.org/medialibrary/fedsmallbusiness/files/2019/20191211-ced-minority- owned-firms-report.pdf
27 Federal Reserve (2021): Small Business Credit Survey. Report on firms owned by people of color. https://www.fedsmallbusiness.org/medialibrary/FedSmallBusiness/files/2021/sbcs-report-on-firms- owned-by-people-of-color
28 Atkins, Cook, Seamans (2021): Discrimination in lending? Evidence from the Paycheck Protection Program.

In Small Bus Econ, July 2021, https://link.springer.com/content/pdf/10.1007/s11187-021-00533-1.pdf 29 National Geographic Article
30 Brookings Article
31 See Wilmuth (2020): “The Effects of the COVID-19 Pandemic on Small Businesses.” SBA Office of Advocacy.

See also the report by NCRC (2002): “Lending Discrimination within the Paycheck Protection Program”

14 lent among the six community banks headquartered in Alameda County, only $93M (7%) was issued in amounts of $100K or less.32
In a recent report created by the Bay Area Association of Black-Owned Businesses for the Friends of the Public Bank East Bay, these general observations have been confirmed through surveys of the borrowing needs of Black-owned businesses in the East Bay region.33 The majority of surveyed businesses operate with revenues less than $75K, implying needed loan amounts of well below $50K.

Many Black business owners reported a lack of trust in banking and government institutions, including fear of being rejected and reluctance to carry debt in general. These concerns often keep business owners from applying for the credit that might be necessary to grow. Trustworthy institutions rooted in the community, low-interest loans, ease of access, flexible repayment terms, and more situational evaluation of the risk created by borrowers with lower-than-typical credit scores can all help address these concerns.

One type of lending institution is currently providing such loans: CDFIs are organizations, frequently nonprofit, with the federally assigned mission to provide loans to people and businesses underserved by the traditional banking system. The Bay Area has one of the highest densities of CDFIs in the country with more than ten CDFIs headquartered, and many more actively lending, in the area (Appendix D).

These institutions have a strong track record of distributing a majority of their funds to BIPOC- and women-owned businesses, originating loans with amounts as small as $5K, and providing technical assistance to help borrowers succeed. This includes determining the right type and amount of financing and writing a sound business plan. The goal is simply to help borrowers grow and succeed in their businesses— and repay their loan.34
Providing loans and assistance with this level of engagement is costly. As they are committed to providing low rates, most CDFIs finance their operations primarily through grants and donations. Loan funds generally come from banks who are comfortable issuing loans to CDFIs at low rates (currently as low as 2-3%) in order to satisfy their Community Reinvestment Act (CRA) requirements. All CDFI executives we talked to confirmed that there is currently no lack of bank loans at low rates. In some cases, CDFIs commit to pay back 100% of the principal to the banks, even if the underlying borrowers fail, relying on grant money to cover any losses. This dependence on grants and donations to provide their loans often makes it challenging for CDFIs to grow, as they need to raise additional capital to enable additional debt financing for a growing portfolio.35 32 This is based on an analysis of the latest published annual reports for these six banks (Fremont Bank, Summit Bank, Community Bank of the Bay, Beneficial State Bank, Gateway Bank, Metropolitan Bank. 33 “Borrowing Needs of Black Owned Businesses” A report by the Bay Area Organization of Black Owned Businesses (BAOBOB), commissioned by the Friends of the Public Bank East Bay. See Appendix C for more information.
34 Many representatives of CDFIs who we talked to during our research (see Appendix D) were proud of not letting any of their customers fail or rejecting them for their loan applications, instead they are doing everything in their capacities to help them succeed.
35 See Simmons, Bereton and Klein (2021): “Addressing the Capitalization and Financial Constraints of CDFI Microlenders”

15 This situation is structurally unsustainable. Private banks satisfy their federally regulated requirements to lend to low-to-moderate income businesses without incurring the cost of issuing these loans themselves and without taking on any significant risk, while still returning profits to their private shareholders.36 The CDFIs, on the other hand, do all the work necessary to issue these loans and additional services, operating with lower resources, distributing no profits, and financing their operations and loan losses through grant money.37
When lenders complain they cannot find enough qualified borrowers, it means either that they have too few applications, or they do not feel comfortable with the level of risk implied by the applications they see. The PBEB can help with both aspects of this problem, primarily by providing an additional stable source of funding for CDFIs in the region at low interest rates (3% or less), in the form of a revolving line of credit. In the short term, this will provide additional financing sources for CDFIs eager to grow their portfolios. In the longer term this would guarantee the availability of low-cost funds in times when commercial banks might not be willing to lend at similarly low rates, thereby creating an interest rate ceiling that is crucial for ensuring the access to low interest rate loans for small businesses in the future.

Another way the PBEB can assist is to buttress the management of loan guarantees, to allow local lenders to be comfortable with applicants further out on the risk spectrum. One successful program for helping financial institutions occupy space further out on the risk spectrum has been the California Capital Access Program (CalCAP). Though the program has been a success for years, recent changes in both federal and state rules have made the program less attractive in some different ways. 38 The PBEB
can address some of these issues, partly by providing a locus for joint management of guarantee funds for multiple local lenders, and partly by foregoing some interest rate revenue to offset the loss of state subsidy on participation loans. For example, a borrower might have loaned $50K to an entrepreneur.

Under CalCAP, both would contribute 2-3% to a guarantee fund, or about $1250 each. With a participation loan, the originating bank would contribute half that amount, with PBEB making up the other half. To make up for the absent state subsidy, PBEB can offer half its revenue from that loan for the first two years. Unlike the state subsidy, this can be sustainable indefinitely, so long as PBEB can keep its underwriting and administrative expenses down.

The CalCAP program works best when the volume of lending is high enough for the statistics of a guarantee fund to work well. A 5% loss ratio for some category of a hundred loans held by multiple banks can still be devastating for a single bank that only made a few of those loans if they are unlucky enough to hold more than one default. PBEB can aggregate activity from a variety of small banks and CDFIs, thus spreading the risk across multiple banks.
_____________________________________________________________ 36 Default rates for CDFI loans are generally not higher than for typical bank loans. For 2019, the delinquency rate of all reported CDFI loans was 1.08%. See the report by the Opportunity Finance Network (2019): “Opportunity Finance Institutions Side by Side”, p. 5 37 The Financial Times recently summarized this unsustainable situation well. Financial Times, 12/13/2021: “Race and Finance: America’s Segregated Finance Sector”. 38 https://www.urban.org/sites/default/files/publication/98051/ capital_access_programs_cdfi_case_study_on_ the_california_capital_access_programs.pdf

16 In addition, PBEB could improve the climate for local small businesses in other ways, not currently reflected by this Study’s financial model.
● PBEB could purchase loans from CDFIs, securitize them and sell them on the secondary markets to banks and other lenders, thereby freeing up the balance sheets of CDFIs that will allow them to make more loans. Centralizing the purchase, securitization and sale of these small assets at a public bank could reduce costs for participating community banks and CDFIs that are already doing these types of transactions.
39 Given that these credits would mostly be CRA eligible, a high demand on the secondary market for these loans is almost guaranteed. ● PBEB could help smaller CDFIs or other non-profit lenders with technical loan infrastructure.

These lenders create great value in the time-intensive customer-centric interactions with the customers focusing on their actual needs; the training provided in understanding their borrowing needs, business plan, accounting, growth, and much more. The technical infrastructure for distributing and servicing loans on the other hand could probably be standardized and centralized, thereby reducing the cost of lending for CDFIs. ● PBEB could act as a referral agency supporting the growth of CDFIs. Every single CDFI representative we talked to mentioned a lack of awareness among small business owners in the Bay Area of the existence of alternative and mission-oriented lenders like themselves. Public agencies, such as cities’ economic development offices, are much more known to small business owners. By developing a trusted public brand and cross-subsidizing significant marketing and platform building, PBEB could take on the role of referring incoming loan inquiries to the most relevant CDFI or community bank in the area.
40 Approximately ten CDFIs headquartered in the Bay Area focus on small businesses (primarily low- income, BIPOC-owned). They (very roughly) have originated approximately $50M in such loans over the last year. The East Bay makes up about 1/3 of the Bay Area by population, so the CDFI loan volume in the East Bay can be estimated at about $17M. Beyond the CDFIs, the six community banks located in Alameda County have around $90M in small business loans (loan amounts below $100K) on their books.

Assuming 10-year terms, this is about $9M in business each year. Adding credit unions and other lenders implies as much as $30M in small business lending in the PBEB service area each year.

If partnerships with the PBEB could expand the range of businesses to which these CDFIs could lend, either by lowering the interest rate, or providing access to a guarantee fund, this sum could increase substantially, and the PBEB might be able to grow into a share of that expansion. This is incorporated into the financial projections.
39 Michael Herne from LISC made the case for creating a secondary market for CDFI loans. Herne (2021): “A “Quantum Leap” for CDFI Funding: The Potential of Securitization”. 40 Darien Louie’s report for Alameda County in 2019 came to a similar conclusion. While there are plenty of resources in the East Bay providing loans and assistance to small businesses, few of them are widely known. Darien Louie (2020): “Community Investment and Local Banking Initiative Study.”

17 Municipal finance
Most municipal borrowing is served by the nation’s investment banks and the market for municipal bonds they have developed, and yet there is value in including municipal lending in the services provided by the PBEB, both to the Bank and to its member municipalities. In 2020 alone, the four initial member governments issued more than $350M in bonds, not counting short-term tax anticipation notes.

These bonds had a wide range of terms, ranging from 1 to 20 years, with a few even longer than that.

The mid-to-longer term bonds have rates ranging from 2% to 3%. Some of these bonds are for taxable purposes, and those are for slightly higher rates, up to 4%. The nation may be entering a climate of somewhat higher rates than has been the case for several years.

From a government’s perspective, bond debt is slow and relatively inflexible. A program must be thoroughly described in bond documents prepared months in advance, and once a bond is sold, there is no negotiation if the agency’s programmatic needs or economic circumstances change. The bond market can be a huge resource to the government of a wealthy community, which can access seemingly endless quantities of money at low rates. Less affluent communities, however, can struggle to access affordable interest rates, even though the actual difference in risk to the bondholder is barely detectable. PBEB can relieve some of these burdens, providing a valuable asset to the member governments.

Though it will take time to grow into an institution that can address these needs at large scale, the Bank can help in a small way simply by being one additional buyer for members’ municipal debt. This is especially true because it is not driven by maximizing profit and thus may be able to consider lending at a lower cost and set a ceiling on bond rates secured by the member governments.

Beyond that, with sufficient expertise and personnel, the Bank could actually underwrite some small bond issues. Apart from the basics of filing regulatory documents, the fundamentals of underwriting are twofold: finding buyers and making a market, which simply means promising to buy bonds in the future if some bondholder wishes to sell. (The price is not predetermined.) Collateral requirements mean the Bank will usually have the liquidity necessary to make a market for a modest issue because the state- required collateral can be repurposed to purchase these securities, which also count as collateral.

Finding buyers for these bonds is related to other prospective components of PBEB business. For example, the PBEB might choose to securitize and sell packages of small business loans or green energy loans, and presumably the buyers of those securities might also be buyers of the municipal bonds.

Being able to underwrite some bonds could potentially save on issuance costs for the member government and provide revenue to PBEB. It could also help the member governments in future negotiations with potential underwriters to have additional options for underwriting, especially an option that provides a degree of transparency about what it earns. Finally—and this gets to the original point of a public bank—it makes sense to be able to deploy public assets in service of important public policy goals. If a PBEB can make some of its member governments’ own capital available for their needs, that is all to the good.

From the Bank’s perspective, municipal debt is valuable not only for its security, but also for its predictability. Because of the bond market’s inflexibility, bond issues are generally planned far in advance. This allows the PBEB to have a high degree of confidence in certain components of its business,

18 especially important during the opening phase of the Bank, where the guarantee of some income can allow the PBEB to show incoming revenue much sooner than is usual for a startup.41 In fact, recent years have seen a substantial amount of project finance move from the open bond market to private placements with banks for exactly these reasons, especially for smaller projects.42 These are attractive lending opportunities for any bank, not just a public bank.

The PBEB will not start at a scale that could accommodate hundreds of millions in loans per year, but setting a precedent that it will lend to its members may be useful, both to the member governments and to the Bank itself. However, if at its inception, the Bank were to buy a substantial amount of upcoming bond issues, it would have a fair amount of interest income available from the start, that could be liquidated as it builds out other components of its lending portfolio. It could buy this either by participating in a standard bond sale, or underwriting the bond and keeping some fraction of the issue.

Financing
The basics of a bank are the money invested in it and the money it invests. The first constitutes the bank’s capital, the foundation of its financial stability, and the second, its funding, the deposits and invested funds with which the bank makes its loans. We describe these in turn.

Capitalization
Any bank must account for the capital with which it is begun. This is the original money invested in creating the bank, and that continues through its life to be the difference between the bank’s assets and the deposits and investments that it must eventually return to others. The PBEB is to be a mutual institution, where ownership is by the members who invest “pledged” deposits that count as capital.

These are deposits that are meant to be permanent.43 Pledged deposit accounts do not bear interest, though the ownership share they represent can acquire additional value through retained earnings.

Because of this, it is likely not within the purview of investment administrators alone to make such an investment, and will require an explicit appropriation by the relevant legislative body. These pledged deposits are to be fully collateralized.

The financial projections accompanying this report assume that the Bank begins with a commitment of $40M in pledged deposits from the initial four member governments: Oakland, Berkeley, Richmond, and Alameda County. They show that running the Bank in a conservative and careful fashion can result in an institution worth over $250M within a decade. Much of the activity of a bank— the number of loans issued, the amounts, the deposits and investments behind them— can be scaled arbitrarily. Some of the important costs, however, do not scale as conveniently. These components of the Bank’s overhead 41 A more mature and financially stronger bank can offer more flexibility, but this will not be true at the beginning, at least not at the scale at which most bonds are issued. At smaller scale, it will certainly be true, and pieces of the original bond issue can be liquidated to fund such loans. 42 See Ivanov and Zimmerman, “The Privatization of Municipal Debt” Brookings, 2018. The privatization is not all to the good, and can have the effect of impeding access to the bond market for financially weaker governments. https://www.brookings.edu/wp-content/uploads/2018/08/WP45.pdf 43 The pledge contracts can conceivably be drawn to allow for gradual withdrawal as the Bank is able to replace the pledged monies with capital accumulated through operations, or through other contributions.

19 include the costs of staff, as well as the costs of the necessary data processing infrastructure, legal expenses, and regulatory compliance. The smaller the bank, the more difficult it is to amortize these costs and the more expensive the services it provides become. In effect, a policy goal of low-cost capital sets a minimum size for the institution. We have tried here to specify the minimum size necessary to carry these overhead costs and still achieve the policy goals of low interest rates and security.

Funding
This study does not address the question of municipal budgeting to identify how the initial investment might be appropriated by each member government.
44 As identified in the financial projections, the
total amount constitutes less than half a percent of the collective value of the cash and investments of the four founding member governments, or about 0.75% of their collective annual budgets. The money could be appropriated from those investment balances as a one-time expense invested in the PBEB.

In addition to the bank capital, any bank plan must also account for the money to be loaned. For the PBEB, this will include liabilities in the form of tradable bonds, or notes of the Bank, as well as more traditional deposits. These bank bonds are specifically permitted by California code 53601(r), and are not required to be collateralized.

Large institutions widely use bonds and large denomination CDs as a store of value. These investments are secure and easily cashed in to provide necessary liquidity. The PBEB founding agencies are no different from thousands of other institutions. Alameda County has over 30% of its portfolio in money market funds and commercial paper, including over $300M at JP Morgan. PBEB bonds will be another option available to the cash managers for storing their money and keeping it safe.

Investments like these are made for security and liquidity, not yield. The average rate of return for Alameda County is 1.12% (July 2020-June 2021) and the rate for the three cities is even lower; the rates PBEB investment returns will mirror the rest of the market. The agencies investing their money in PBEB notes will not have to sacrifice yield to do so. The use of these funds and their relation to the budgets and assets of the sponsoring agencies is explored further in the financial projections.

In addition to the member governments, the Bank can accept deposits, or note purchases, from area non-profits and foundations. These have considerable cash resources. According to publicly available tax disclosure forms and annual reports, the assets of twenty of the largest non-profits and foundations in the local area include more than $1.3B in cash and equivalents, and billions more in equities and longer- term bonds. Moreover, institutions such as these (especially in health and education) are increasingly adopting the “anchor mission” approach to their relationship with local communities, and a significant part of this includes re-directing a portion of their financial assets to locally beneficial strategies (such as affordable housing, environmental sustainability, and economic development). Attracting only a percent or two of that cash alone could amount to tens of millions potentially available to the Bank. There are also many smaller non-profits and foundations in the area, from which PBEB might receive investable funds. These funds would provide valuable flexibility and be an important component to the liquidity 44 All numbers referencing the cities’ and County’s finances in this section are based on an analysis of the last five years of the four agencies’ monthly treasurer’s/cash management reports published on their websites.

20 risk management strategy (see Risk analysis, p. 29). The financial projections reference deposits and investments made from these cash balances amounting to a bit more than one percent of the available cash.

The bank deposits from the member governments, including the pledged deposits, are required by California state law to be collateralized. This will provide a substantial amount of available liquidity that can be used for the management of the municipal lending operation, such as the market-making suggested there.

Finally, according to the state Treasurer’s investment guidelines, doing business with the PBEB will require adjustments to the investment policies of its member governments. The City of Oakland has already made this change, approving the option to invest in public banks.45 Expenses
The goal of the PBEB is to provide credit as safely and inexpensively as possible. To achieve this goal, lending programs are designed to capitalize on existing networks and partner banks, and to eschew expensive underwriting operations wherever possible. In similar fashion, the day-to-day operations are intended to take advantage of existing infrastructure and avoid expensive expenditure for buildings and real estate. Thus, the financial projections include minimal funds for facilities; the assumption is that most if not all of the Bank operations can be housed in facilities already owned by the member governments.

Similarly, the staffing projections beyond the C-suite employees use salary numbers comparable to those appropriate for senior civil servants and employees of local CDFIs in the area. People should be paid fairly— with the cost of living in the East Bay taken into account and commensurate with their expertise and ability to contribute to the operation of PBEB— but not exorbitantly. Details of the staffing levels and salaries can be found on the assumptions sheet of the financial projections.

Expansion and growth
The Bank can become an integral component of the financial management and policy apparatus of the member governments. However, it will have to grow substantially from its inception in order to fill that role and some constraints on the growth of the PBEB must be considered. At the outset, PBEB does not anticipate providing demand accounts (checking services) to its member agencies. Governments are high-engagement customers for this service, which requires complex bookkeeping and instantly responsive customer service. The PBEB may grow into this role for its members over time, at the discretion of its Board.

At this juncture, we have focused on keeping costs low, to demonstrate that keeping costs low is viable.

A future PBEB board might choose to stress capital growth to a greater degree by increasing rates for some business lines. A mutual bank can only grow as fast as its investors—or its business operations — build up its capital. Since part of the policy goal is to provide credit as cheaply as possible, there will always be tension between providing low costs and increasing capital. 45 Oakland ordinance: https://cao-94612.s3.amazonaws.com/documents/IPFY22.pdf

21 One growth strategy for the PBEB is to ask its member governments to increase the amount of capital and funding they invest. Though there is considerable room between the initial investment level envisioned here and the limits prescribed by the concentration risk treasury policies of the member governments, there are obvious limits to growth by that strategy even beyond concentration risk.

Another growth strategy is to increase the PBEB’s capital by including other agencies as members.

Though Oakland and Berkeley are the two largest cities in Alameda County, a dozen others could also join, representing growth potential of another 20-25% of assets. Alameda school districts and other quasi-governmental agencies (not counting BART) would add another 20-25%. BART alone would add 10%. Beyond the borders of Alameda, other nearby county governments and their cities and agencies offer the possibility of perhaps four to five times more investments. There is, therefore, ample room for growth by expanding membership.

22 Financial Projections
The following financial projections do not incorporate growth assumptions beyond increases in loan demand and modest increases in the amount of assets invested, such as increases in membership, or substantially higher investment levels. Given that we have projected that this small and conservative form of the Bank is viable, growth opportunities are likely to arise naturally.

The financial projections for the PBEB depend on an analysis of the available assets and estimates of the demand for credit in the various lines of business anticipated. A bank run in a conservative, steady fashion will result in a tremendous benefit to the member governments and their citizens.

The projections show a bank with assets approximately six times the size of its capital— substantially more conservative than the 10-to-1 or more that is typical of private banks— while still doubling in size over the course of its first few years, as it fills out its loan portfolio. Because these projections are conservative, the Bank may grow more quickly than these projections suggest.

For clarity, the PBEB’s pledged deposits and accrued earnings are presented separately in the financial projections. How the earnings accrue to the Bank’s original investors and how much is reinvested is a matter to be determined by the member governments and Bank management.

The design of the PBEB assumes that some portion of the cash and investments of each of the member governments will be made available for investment by the Bank. In making estimates of how much might be available, it is important to consider not only the economic cycle of boom years and busts, but also the annual cycle of tax payments. Municipal governments in California tend to be flush with tax revenue in April and May of each year, and at a low ebb a few months later, as fall approaches.

23 The above graph shows the annual cycle of collective cash and investments for all four prospective member governments. At the low ebb in 2017, the treasuries of those governments still held more than $5 billion. For the sake of financial projections, we assume that only a little more than 1% of the funds available for investment at the low ebb of August and September of that year might be invested in the PBEB in 2022. Except for the initial capital investment, these would be time deposits or notes, available for liquidation at the end of the investment term, though we assume that most or all are normally reinvested when their term is complete.

The sponsoring agencies already make longer-term investments with these funds. The graph below shows the levels of investments for terms longer than three years. Again, looking back to the low ebb of these funds in 2017 and 2018, there were more than $250 million invested at these terms by the member governments. There is considerably more today, almost $2 billion according to annual treasury reports, as the second graph indicates.

The financial projections envision these notes to be issued in 1, 3, and 5-year terms, currently estimated at 0.5, 1.0, and 1.5% interest. The projections assume that the member governments invest in the Bank proportionally to the relative size of their portfolios.

The projections show that with a $40 million investment, the member governments will create a bank able to invest many times that number in their local economy. Assuming moderate growth and making conservative assumptions about investments, the PBEB will have loaned over $120 million by year 3. By the end of a decade, the original investment will result in over $250 million in assets, and almost $400 million in loans made.

Basic financial projections are on the next three pages. The full spreadsheet of the financials is available on request; please email [email protected].

Balance Sheet
(dollar figures in thousands) Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Assets
Term Loans and Lines of Credit
Municipal Bonds 50,000 50, 000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Electrification Loans 11,760 27,440 43,120 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Other Green Energy 1,323 3,087 4,851 6,651 8,451 10,251 12,051 13,851 15,651 17,451 Small business participation lending 2,026 4,637 7,248 9,968 12,688 15,408 18,128 20,848 23,568 26,288 Affordable Housing Loans 1,386 2,178 2,970 3,770 4,570 5,370 6,170 6,970 7,770 8,570 Pre-development Housing LOC 6,831 13,891 20,880 28,080 35,280 42,480 49,680 50,000 50,000 50,000 CDFI Small Business Lending LOC 1,584 2,360 3,129 3,929 4,729 5,529 6,329 7,129 7,929 8,729 Loan Loss Allowance -113 -144 -30 -117 -158 -199 -240 -268 -294 -321 Total Loans and LOCs 74,797 103,449 132,168 152,281 165,559 178,838 192,117 198,530 204,623 210,716 Other Investments
Government Securities 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 Mission-aligned short-term
investments 32,491 12,849 12,104 3,388 2,216 1,842 174 1,557 3,502 5,697 Total Other Investments 72,491 52,849 52,104 43,388 42,216 41,842 40,174 41,557 43,502 45,697 Clearance Account / Cash 800 800 800 800 800 800 800 800 800 800 Total Assets 148,088 157,097 185,072 196,469 208,575 221,480 233,091 240,887 248,925 257,214 Equity
Capital founding agencies 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 Retained Earnings -642 -518 -82 301 350 452 526 476 434 388 Total Equity 39,358 38,839 38,757 39,058 39,408 39,860 40,386 40,863 41,296 41,684 Liabilities
Agency Loans
1 year loans 61,898 67,322 73,081 79,193 85,678 92,554 98,647 102,593 106,697 110,965 3 year loans 22,925 24,934 27,067 29,331 31,732 34,279 36,536 37,998 39,517 41,098 5 year loans 23,908 26,003 28,227 30,588 33,092 35,748 38,102 39,626 41,211 42,859 Total Agency Loans 108,730 118,258 128,375 139,112 150,502 162,581 173,285 180,217 187,426 194,923 Non-profit deposits 0 0 17,940 18,299 18,665 19,038 19,419 19,807 20,203 20,607 Total Equity and Liabilities 148,088 157,097 185,072 196,469 208,575 221,480 233,091 240,887 248,925 257,214

25 Profit and Loss
(dollar figures in thousands) Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Income
Asset Income
Municipal Bonds 1,375 1,375 1,375 1,375 1,375 1,375 1,375 1,375 1,375 1,375 Electrification Loans 240 870 1,498 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Other Green Energy 27 98 168 266 338 410 482 554 626 698 Small business participation lending 54 186 317 498 634 770 906 1,042 1,178 1,314 Affordable Housing Loans 36 75 107 151 183 215 247 279 311 343 Pre-development Housing LOC 137 368 598 913 1,147 1,381 1,615 1,625 1,625 1,625 CDFI Small Business Lending LOC 36 57 79 108 130 152 174 196 218 240 Default Losses 0 -117 -262 -403 -490 -531 -572 -614 -641 -668 Total Loan and LOC interest income 1,904 2,914 3,879 4,908 5,317 5,772 6,226 6,458 6,692 6,928 Other Investment Income
Government Securities 300 300 300 300 300 300 300 300 300 300 Mission-aligned short-term
investments 1,059 526 369 85 55 46 4 39 88 142
Total Other Investment Income 1,359 826 669 385 355 346 304 339 388 442 Total Income 3,264 3,740 4,548 5,293 5,672 6,118 6,531 6,797 7,080 7,370 Expenses
Debt service expenses
Interest paid on non-profit deposits 0 0 56 91 93 95 97 99 101 103 Interest paid on agency loans 889 956 1,051 1,148 1,242 1,342 1,430 1,487 1,547 1,609 Total debt service cost 889 956 1,107 1,240 1,335 1,437 1,527 1,586 1,648 1,712 Operations
Total Operations Expenses 862 964 997 1,031 1,066 1,102 1,140 1,178 1,217 1,258 Staff
Total personnel cost 2,156 2,338 2,527 2,721 2,920 3,126 3,338 3,556 3,781 4,013 Total Number of staff 11 12 13 14 15 16 17 18 19 20
Total Expenses 3,906 4,258 4,630 4,991 5,322 5,665 6,005 6,321 6,646 6,982 Net Income -642 -518 -82 301 350 452 526 476 434 388

26 Key Ratios

Staffing
The PBEB is designed to be as lean as possible. Programs are to be run in partnership with existing institutions and overhead is to be kept as low as feasible. Salaries are projected to be in line with comparable jobs in the government and non-profit sectors.

Following are short, high-level descriptions of the work involved in each of the envisioned programs.

Housing
Most of the labor involved in supporting the housing program will involve negotiating arrangements with the nonprofit affordable housing developers who want to take advantage of the line of credit program. We anticipate working with one to two dozen of these agencies over the course of the first three years. Much of the time involved will be in the original negotiation of agreements, including reviewing proposed collateral.

In addition, the housing program will involve establishing partnership agreements with lenders who wish to support the proposed rehabilitation lending. Some of these may be the agencies getting a line of credit, and some may be different lenders. We anticipate a relatively small number of lenders relative to the line-of-credit agencies, so not a tremendous additional burden.

Climate
The climate lending, including both electrification and renewable construction, will involve making arrangements with a small number of partner underwriters and seeking ways to delegate the paperwork to the customer points of contact—plumbers and electricians for the electrification work and installation contractors for the renewable energy lending. This will involve working with a small number of partner lenders, along with software vendors that might produce applications for doing the paperwork, as well as associations of contractors to get the word out.

Small business lending
Developing relationships with the co-operative businesses, CDFIs and local banks that are to be the backbone of the operation will make this likely the most labor-intensive program included. The underwriting judgments are to be carried out by the partners, but considerable work will be involved in reviewing the terms and outcomes of the partnerships.

Municipal finance
Municipal finance operations are important to the vision laid out here, but the actual transactions will be relatively few and large compared to the lending programs described above. Managing these transactions, and any potential subsequent repurchases and sales related to the market-making operation, requiring relatively small contributions of time from the CEO, CFO, and treasury management.

Treasury operations
The treasury operations for the PBEB include managing the sales of the notes that fund the operation, managing collateral, and investing excess funds that are not currently invested in a core lending program. Eventually this will also include deposits from non-profits and foundations.

28 The treasury will also be involved in the repurchase and resale of municipal securities for which the PBEB is providing market-making service. This must be done daily, and as a consequence requires adequate backup plans, but the number of transactions per day is probably small and can be handled by one person in a morning’s work.

Data processing/IT
A certain amount of baseline IT overhead accrues to every office operation: maintaining the local area network, wi-fi, a computer on each desk, and so on. It is plausible that this can be addressed by colocation of the PBEB in space maintained by one or the other of the founding agencies and participating in their IT system.

Beyond that basic level of support, the PBEB will require financial software in order to support organic growth of future business. Most data processing overhead will be focused on the development and maintenance of that platform. Because this is supplied by an outside vendor, most development and maintenance will happen there, but the PBEB must provide adequate oversight of that outside vendor, as well as local expertise to assist in development and addressing unforeseen situations.

In addition to the backbone software, some lending programs may require specialized software to assist in the underwriting process. For example, we envision a tablet application that plumbers and electricians can use to initiate the underwriting process on behalf of their electrification customers.

Because financial software requires a high degree of security, much of this development will probably not be done in-house, with local expertise available to consult and direct. Some development may be done with grants or donations prior to startup.

We project that these tasks can be serviced by a “hands-on” CTO, along with a relatively technical assistant, who will serve as the local point of contact for the networking and other local technology concerns.

Compliance officer
The PBEB has budgeted a staff member to oversee the Bank’s compliance with all the relevant state and federal regulations. In addition, the officer has a budget to employ outside accountants and auditors as required by management and regulatory law.

Pre-Opening Budget
Some budgeted funds will need to be spent before the start of the financial projections. These funds are being raised separately, via foundation grants and donations and some contributions from member governments. The rough numbers below were generated through conversations with experienced bankers and banking attorneys in California.

29 Developing business plan in collaboration with government agencies $ 250,000
Vetting and compensating founding board members 380,000 Hiring and retaining executive staff 650,000
Additional legal and consulting fees 250,000
Technology & Fixed Assets 725,000
Misc. Fees 90,000
Total $ 2,345,000
Risk analysis
Banking is all about how to manage the risk of taking in money at one set of terms and lending at another. While history has shown that these risks exist, it has also shown how to manage an institution to be resilient against inevitable economic fluctuations. Many banks failed during the Great Depression, for example, but there were also many that did not. Many banks became overextended and collapsed during the bank crisis of 2007-2008, but again, many, including the public Bank of North Dakota, did not.

The secrets of resilience are not obscure, but they are routinely ignored in the stampede for greater profit and the quick buck. The PBEB will manage its risk in many small ways: demanding adequate security for its lending, healthy loan-loss reserves (the financial projections assume loan default rates between 1-4%, depending on the program and in line with industry standard), sharing its risk with local bank partners, transparency and auditing, regulatory oversight, governance controls on self-dealing, and more. It will also manage it in a global sense by simply limiting its leverage.

Leverage is the ratio between the bank’s equity (what it owns) and what it lends out (its assets). The m
ore a bank lends, the more interest payments it receives and the more profitable it can be. However, the more a bank lends, the more it relies on all its borrowers to repay their loans. A bank with $50M in capital and $500M in loans will be rendered insolvent with a 10% default rate, while a bank with the s
ame capital and only $250M in loans will obviously be hurt, but will survive.

Following the urge to extract every penny possible from their investments, commercial bank management typically pushes leverage up to the regulatory limits. Asset-to-capital ratios approaching 10-to-1 (often written as 10%) are not uncommon. The PBEB is to be run conservatively and carefully to make it resilient, and the financial projections show that this can be done successfully at 6-to-1 (or 16%). Apart from small-scale provisions like loan-loss reserves, this level of capital provides a substantial cushion for when hard times inevitably hit.

Obviously, there is default risk to any loan, but concentration restrictions and other internal controls can address those. Systemic risk must be considered as well. The important risks are a change in interest rates that squeezes the spread between the rates the bank pays and the rates the bank receives, and a recession where default rates go up and borrowing goes down.

The financial projections contain a crude stress test where, in year 4, the default rates double and the growth rate in borrowing drops 90%. As a result, the losses from some lines of business triple and the bank loses money that year. But even so, the losses are much smaller than the cushion available and

30 though the bank has a negative cash flow, it does not require more cash. The growth of subsequent years quickly makes up for them, though note that those years assume the same conditions as before the recession, and not the typical above-average growth that is usual in the years immediately after such an event.

Following is a discussion of the individual lines of business, their risk, and how they would be impacted by a change in interest rates or a recession.

Housing
Bridge finance for housing agencies carries some risk because not all complex deals work out in the end.

However, the structure of these loans is lines of credit secured by equity the agency already owns, which will limit the risk to the Bank. Importantly, these loans do not depend on the success of any particular deal to be secure.

The sum of the debt of each participating agency is indefinite, though subject to an overall limit, but the terms of each drawdown of that credit is a 3- to 5-year term, which will limit the interest rate risk to the Bank. These lines of credit could also be structured with a floating rate, which would eliminate the interest-rate risk, though it might also make the program less attractive to the housing agencies. The financial projections assume a fixed rate for this line of business.

Loans for affordable housing rehabilitation have longer terms, so the interest rate risk exposure opened by this line of lending is more substantial. Because the PBEB is young and its equity new, it would be best to make this kind of longer-term lending as floating-rate loans. This might reduce the appeal of these loans, but the market is unserved at present, and with low overhead, the PBEB should be able to hold that floating rate down even so. Since many of the debts that built these properties are already fully amortized, these loans can be secured with the property to be rehabilitated, in part or in whole.

Electrification lending
The loans involved in the electrification program are small and the terms limited to 5-10 years at the outside. Because the terms are relatively short, the risk of rising interest rates is low. The relatively high turnover means that rates to borrowers can be adjusted relatively easily if rising rates produce pressure on the cost of funds.

Automating the underwriting paperwork and delegating some of it to the plumbers and contractors will reduce the administrative burden, but will necessarily increase the borrowing risk somewhat. Adequate loss reserves are thus necessary to make the program successful. If the repayment can be done through the utility bill, this will dramatically lower the risk of default.

Business
The business lending proposed at the outset is largely in the form of relatively short-term lending to small businesses: loans averaging $40,000, with terms of 5-7 years. These might be in the form of lines of credit for buying goods or business expansions/construction. This lending will be conducted jointly with other underwriters, who will share some of the risk. The interest rates may float, depending on the risk appetite of the participating bank or CDFI. The relatively short terms will help insulate against interest rate risk.

31 Other business lending envisioned in this proposal is essentially the maintenance of a guarantee fund, where the risk involved is essentially limited to misapprehension of the default risk for these kinds of loans. The CalCAP program has 20 years of history to draw on, which means that there is good data available for making risk estimates in different economic conditions.

The interest rate risk involved in these loans is no more than the partner bank wishes to take on. Much business lending uses a floating rate, so the risk of rising interest rates will be borne by the borrower.

Again, the PBEB’s low overhead can offset the disadvantage of the floating rate.

Municipal lending
The default risk for municipal bonds is very low. A small number of California cities have gone bankrupt in recent history, so the risk is not negligible. But the ledger has two sides: the PBEB will possess not only the debt of its member governments, but some of their assets as well, which will serve as a certain amount of insulation against default risk.

Interest rate risk for municipal obligations is more of a concern, since the likely terms can be substantially longer. The PBEB can address this by limiting its purchase of any particular issue, but also by committing to making a market for that issue. To see how this could work, imagine one of the member governments is planning to issue a $30M bond for some purpose. The PBEB can buy a third of it at a yield of 2.5%, and use some of its liquid holdings to guarantee a purchaser for the other two-thirds of it. Because the Bank will be required to hold collateral against its deposits, it will always have an ample store of liquidity, and this can be put to use by promising to buy back bonds, which can also serve as collateral. If interest rates rise, the Bank can buy bonds back from bondholders who wish to divest, and resell them. This is the traditional role of the underwriter, but with low enough overhead, the PBEB can afford to support a good price for the bonds, keeping them a good investment for other bondholders.

Alternatively, of course, the issuing government could make the bonds a floating rate, in which case a private placement would not entail interest rate risk. However, it is valuable to develop the risk- management capacity of the PBEB, so this might perhaps be a strategy kept in abeyance as a way to address problems that might occur in the future.

Liquidity risk
Any bank must address the risk that its investors or depositors will seek to put their money elsewhere.

The three scenarios to contemplate are the short-term, and temporary, embarrassment of one of the member governments; some member government wishing to withdraw from the PBEB; and a widespread economic downturn that limits member liquidity.

First, consider the possibility that a member government experiences a budget catastrophe that forces it to withdraw its liquid assets from the PBEB and makes it unable to roll over its investments. In this case, the PBEB would seek to make up the difference from the other members. One member is much larger than the others, but by limiting the amount of investment from each, it should still be feasible for the other members to make up the difference. The projections here envision only 1-2% of all cash and short- term investments going to the Bank, so the difference will be small. If the cities had to make up the difference from losing Alameda County, their contribution might rise from 1% of their investments to 4%.

32 This is a comparable risk to having some member withdraw from the Bank. Presumably the written agreement of the initial investment will preclude sudden large withdrawals from the Bank’s capital. In the event that the obstacles to withdrawal are overcome, the mitigation strategy is roughly the same: to have the other governments step in to make up the difference.

Insulation against these risks is another reason to cultivate a certain level of investments from local non- profits. While few of these organizations could be considered counter-cyclical, their finances are affected in different ways from the member governments. Like the governments, there are social and political reasons for them to support the PBEB, and if stepping in to help alleviate a potential liquidity crisis only involves moving investments from some other bank to the PBEB, this is a small ask to make in a time of crisis.

Finally, consider the effect of a recession. Obviously, a recession reduces the amount of cash and investments available to each of the member governments, and increases their demand for liquidity, too.

Here, there are two lines of defense for the PBEB. The first is simply the small demand on the member governments. Again, the financial projections here assume only a small percentage of the available funds are invested in the Bank. Presumably these can be among the last to be liquidated by a government in distress. In the event of a liquidity crisis caused by these events, the PBEB can turn to its non-profit depositors, its correspondent bank, or even the Federal Reserve, for help. Recent recessions have seen the Fed flooding the zone with very cheap or free liquidity to help financial institutions through these kinds of events. Because those efforts have been largely successful, there is ample reason to suspect the same will be true in future recessions.

In addition to these risks, there is liquidity risk involved in the similarity of the PBEB customers. Unlike many other banks, the primary funders of the PBEB are a small and homogeneous group. Their finances are roughly synchronous with each other, with the annual ebbs and flows of their funds occurring in the same months of the year. For this reason, the financial projections depend on allocations derived from the annual minimum balance of cash and investments for the member governments. The PBEB can absorb a certain amount of these ebbs and flows through adjusting investments in a managed investment fund rather than trying to adjust its loan balances.

It is certainly possible—indeed it is to be hoped —that the PBEB will eventually ask for a higher level of investment from its member governments.
46 The flip side of the uniformity of customers is that the finances of the PBEB member governments are highly predictable. Each of the governments makes a budget with short- and long-term financial projections. As the PBEB grows and becomes more successful, these member projections can be made available to the PBEB for liquidity planning purposes.

Governance
The governance design of the PBEB is a critical component to committing to its community objectives while also ensuring financial viability and compliance with banking regulations. Democratic, local 46 Though not too much. California law limits the percentage of its investments a county or city can make in a single entity to 10%, though exceptions may apply. There is a considerable distance between 1 -2% and 10%, but expansion of the bank ultimately will depend on accumulating equity or on expanding membership.

33 control of the PBEB places community members in control of local finance decisions. Community members serving as Directors are more likely to make decisions that will benefit the communities they live in when compared to the traditional private banks that are solely focused on maximizing profits.

Additionally, incorporating community priorities and values into the charter of the Public Bank, further ensures that the Bank's decisions will balance those important public interests with the fiscal and regulatory considerations.

The PBEB’s Governance Plan, attached as Appendix A, calls for a majority of community representatives on the Bank’s Board. Specifically, the Board will provide seats for five governmental agencies (one from each of the three cities and two from the County), two bankers or financial experts, five representatives of grassroots community organizations, and three community representatives who are also financial experts, making a majority of eight community representatives out of a total of 15 Directors. All Board members will be fully vetted and approved by state and federal regulators as part of the process of approving the business plan and the Bank’s charter.

PBEB’s draft Governance Plan also recognizes that it is critical for all Directors to have a solid foundation in “board member responsibilities, fiduciary responsibility, financial and banking principles, and decision-making processes.” The Board of Directors will have responsibilities similar to the directors of community banks and corporate boards, with a much greater emphasis on mission alignment, community participation, and transparency. To accomplish this goal, PBEB will establish an “Academy” to train new Directors and administer a test to Directors before they are seated on the Board. The Academy ensures that Directors all have the requisite banking and financial knowledge to competently serve on the Board and makes Board service available to people who may not have formal knowledge or experience in the financial sector. The existence of the Academy makes Board service accessible to anyone who is interested in serving. Furthermore, the Academy ensures that all Directors will be full participants in Board activity and decision-making.

The PBEB’s draft Governance Plan establishes that the Bank will approve a Conflict of Interest Policy to protect against unlawful insider transactions and conflicts of interests. The Academy will also train Directors as to their roles and responsibilities which will include the necessary education to identify and avoid insider transactions and conflicts of interest. The California Department of Financial Protection and Innovation will supervise the Bank closely for its first three years, as will the Federal Deposit Insurance Corporation. The Board policies, Director training, and regulatory agencies provide multiple layers of protection from double-dealing.

PBEB’s draft Governance Plan embeds community priorities into PBEB’s decision-making process. The Bank has a robust mission statement with five stated values: equity, social responsibility, fiscal responsibility, accountability, democracy. Furthermore, the draft Governance Plan establishes broad loan policies that require Directors to consider the Bank’s external policy goals, including “projects that benefit the economic, environmental, and social health of the entire community.” Traditional banks have charters that generally focus only on the fiscal health of the bank at the cost of all other considerations.

Regulatory agencies focus on consumer protection and the fiscal health of the bank. The PBEB’s unique loan policy framework will allow the Bank to make lending decisions that balance the advancement of community benefits, fiscal responsibility, and regulatory expectations.

34 The PBEB’s governance structure, including the structure of the Board of Directors and the loan policy framework, will ensure that the Bank leverages its role in the financial ecosystem to advance projects with just, equitable, and democratic principles in mind. Furthermore, Board training, and the appropriate regulatory oversight will protect against unlawful insider transactions and conflicts of interests.

Compliance with AB 857 Requirements
Before submitting an application to organize and establish a public bank pursuant to Section 1020 of the Financial Code, a local agency shall conduct a study to assess the viability of the proposed public bank.

The s tudy shall include, but is not limited to, all of the following elements:
(1) A discussion of the purposes of the bank including, but not limited to, achieving cost savings, strengthening local economies, supporting community economic development, and addressing infrastructure and housing needs f
or localities. (p. 3 and throughout)
(2) A fiscal analysis of costs associated with starting the proposed public bank. (p. 22-30) (3) An estimate of the initial amount of capital to be provided by the local agency to the proposed public bank. (pp. 18-27)
(4) Financial projections, including a pro forma balance sheet and income statement, of the proposed public bank for at least the first five years of operation. The financial projections shall include an estimate of the time period for when expected revenues meet or exceed expected costs and an estimate of the total operating subsidy that the local agency may be required to provide until the proposed public bank generates sufficient revenue to cover its costs. In addition to projections that assume favorable economic conditions, the analysis shall also include a downside scenario that considers the effect of an economic recession on the financial results of the proposed public bank. The projections may include the downside scenario of continuing to do business with the local government’s current banker or bankers. (pp. 25-27)
(5) A legal analysis of whether the proposed structure and operations of the public bank would likely comply with Section 6 of Article XVI of the California Constitution, but nothing herein shall compel the waiver o
f any attorney-client privilege attaching to that legal analysis. (Appendix B) (6) An analysis of how the proposed governance structure of the public bank would protect the bank from unlawful insider transactions and apparent conflicts of interest. (pp. 34-36) (b) The study may include any of the following elements:
(1) A fiscal analysis of benefits associated with starting the proposed public bank, including, but not limited to, cost savings, jobs created, jobs retained, economic activity generated, and private capital leveraged. (Not included because of methodology concerns.) (2) A qualitative assessment of social or environmental benefits of the proposed public bank. (This is included t
hroughout and specifically discussed in Introduction [p. 4] and Programs [beginning on p. 8].)

35 (3) An estimate of the fees paid to the local agency’s current banker or bankers. (Not included in this draft.)
(4) A fiscal analysis of the costs, including social and environmental, of continuing to do business with the local agency’s current banker or bankers. (Not included.)

36 Appendix A
Governance Plan
I. Mission Statement
The mission and values of Public Bank East Bay are set forth on pp. 6 of the Viability Study to which this document is attached.

II. Board of Directors
PBEB will be a 501(c)(6) mutual benefit corporation under California law, and regulations regarding directors of a mutual benefit corporation will govern. The Board of Directors of any bank, including this one, sets general policy for the Bank, ensures continuing integrity and alignment with the Bank’s mission, and is responsible to the stakeholders, in this case the founding depositors and all residents of the East Bay for the Bank’s decisions and policies. The Board is also subject to additional scrutiny from the various regulatory agencies that will oversee the safety and soundness of the Bank. The initial Board members will be chosen based on their ability to make sound banking decisions, their adherence to PBEB values, and the understanding that people closest to the problems being addressed are the people with the most robust, innovative, and productive solutions.

Board Composition
The Board will be composed of people with banking and financial expertise, including the CEO of the Bank, and people who can represent and convey the needs of the various East Bay communities, with an emphasis on financial experience along with representatives of systemically underserved and under- represented communities. In addition, the Board will also oversee the safe and sound operation of the Bank. Directors will be chosen from a substantial pool of applicants identified and initially vetted by the experts creating the bank charter application for Friends of the Public Bank East Bay, and then further vetted and examined by state and federal regulators, specifically including California’s Department of Financial Protection and Innovation (DFPI), the Federal Deposit Insurance Corporation (FDIC) and representatives of depositing agencies. All Directors will be accountable to the mission and values of the Bank.

In addition, the treasurers of member agencies, if they are not their agency’s appointed representa tive,
will be ex officio non-voting members of the Board of Directors.

In our research, we determined that a Board of at least 15 members, all committed to the same mission and values, is key to keeping the representation diverse and ensuring that the Bank is connected to the n
eeds and concerns of the people it serves.

When we posed the question of recruiting and selecting Directors to several community leaders and all of our supporter organizations at the time, geographic representation was one of the most supported criteria for community representation, along with race/ethnicity, issue representation (such as experts in environmental concerns or affordable housing), and gender.

37 All potential Directors are required to fill out an application and go through an initial organizers’ interview process, as well as undergo formal vetting by an appropriate professional third party. By California law and DFPI process, all Directors will be subject to a rigorous state-run vetting including a conflict-of-interest evaluation and also background checks and fingerprinting. Also per California law, no one will be permitted to serve on the Board if they cannot resolve any issues which arise in the vetting process to the satisfaction of the DFPI and other regulators. The Board will also be subject to a Code of Conduct related to their continued service on the Board.

Applicants will be asked to commit to serving for up to a three-year time period. One-third of the initial Board members will be appointed for a one-year term, one-third for a two-year term, and one-third for a three-year term.

Once a complete operating Board is chosen, preliminary vetting of future Directors will be turned over to a committee of the Board. After three financially sound years of operation, we expect the regulators to leave Director screening entirely in the hands of the Bank Board.

Creating a Board of Directors with as much community representation as possible is worth the challenge and will result in a Bank that meets the needs of the residents. Because many community representatives may not have had previous financial experience, providing educational resources to such Directors is essential. In the future, the advocates plan to create a public-bank focused Academy to educate Bank Directors; in the interim, the start-up costs will pay for educational resources for Directors, such as the programs at Bank Director and the FDIC. Existing manuals for bank directors will also be used as reference material.

All Directors will be required to participate in trainings and to demonstrate sufficient familiarity with banking theory and practices.

Terms and Removal of Directors
Most Directors will serve a three-year term; however, the initial Board appointees will serve staggered terms (as discussed above) so that one-third of the Board Members’ terms end each year. Once the initial Directors have served their three years, the financial and community Directors’ terms will become staggered, so that five people’s terms will expire at the end of the third year and five at the end of the fourth year. Initial Directors will opt for one of these term lengths, with a fallback of a lottery if the opting does not work out appropriately.

In addition, the initial Board will be tasked with creating a process, in compliance with California law, for removing Directors if legal or reputational disqualifications are uncovered after their appointment, or for inactivity. This process can be defined by the initial Board, or in the business plan for the Bank.

Relationship to Bank management, staff, and city and county governments The initial Chief Executive Officer (CEO) of the Bank and other key senior management personnel must be chosen before the DFPI application is submitted, and will have initial three-year contracts. After that, the Board will be responsible for renewing the CEO’s contract or selecting a new CEO. If the Board is fully operational prior to launch, the Board will have the right to review and approve appointment of senior management other than the CEO. Otherwise, while the application is in progress, the Board

38 candidates will review and recommend the appointment of additional Bank management, some of whom will then have to be confirmed by state and federal regulators.

Directors will have access to confidential customer financial information and will be subject to confidentiality and privacy constraints as required by law and by the Bank’s own regulations. Directors will not participate in Bank management’s decisions with respect to extending or denying credit to any individual or entity where such Director has any conflict of interest. Directors will be responsible for ensuring that the Bank has a robust and reliable policy specifically drafted to prevent unlawful insider transactions and Board Member conflicts of interest while also ensuring that partnerships, loans, lines of credit, and other Bank services are scrutinized for potential conflicts both before they are initiated and while they are active.

The Bank charter will include a provision for non-liability of Directors, and the initial budget includes professional errors & omissions insurance. The CEO and the Chair of the Board will report to the sponsoring agencies and other government stakeholders every six months for the first three years and at least annually after that. The ex officio members of the Board will present ongoing reports to their agencies. Internal and external audits will be conducted at least annually to ensure that bank assets are being reported honestly and used constructively.

The Bank will incentivize managers and loan officers with long-term benefits like job stability and community recognition, not with exorbitant salaries, short-term performance metrics, or bonuses. In addition, the Board should establish a maximum executive compensation ratio; for example, the Bank’s lowest-paid worker should earn no less than 1/5 of what the CEO earns, with a Bay Area living wage as the baseline for lowest-paid workers. The Bank’s charter or other governance instruments should also establish a mechanism, such as an annual performance audit by an independent third party, by which the Board can evaluate management performance and take appropriate steps if the Bank incurs consistent losses.

Compensation
Directors will be paid a modest annual stipend for serving on the Board to make the position more accessible to all community members. They may refuse the stipends if they so choose. The feedback we received through interviewing activists and organizational leaders supported the need for these stipends.

Frequency of Meetings
The Board should, at minimum, meet quarterly, and more frequently at the discretion of the Directors.

We anticipate that the initial Board meetings will need to be more frequent, until procedures are in place and the Bank is running smoothly.

Public Access
Modeling city councils and county boards of supervisors, community college districts, and many other public bodies, we propose that meetings be open to the public as much as possible, with closed-door sessions as needed. We also recommend an annual public meeting, widely publicized, followed by food

39 and celebration of the arts, to encourage community awareness of, connection to, and appreciation of the Bank.

In especially sensitive situations, the Directors may desire to hold regular or special meetings at which no Bank senior management is present. At these meetings, Directors may frankly discuss any concerns they have with Bank management.

The Board is also strongly encouraged to undertake periodic formalized self-assessments of its processes and practices.

40 Appendix B
Legal Analysis
Friends of the Public Bank East Bay retained attorney Sylvia Chi to provide a legal analysis of whether the proposed structure and operations of PBEB would likely comply with the California Constitution as required by Cal. Gov. Code § 57606(a)(5). While the statute explicitly allows preservation of attorney- client privilege for such legal analyses, Friends of the Public Bank East Bay is making a copy of the memo available for viewing in the interest of transparency and full disclosure.

Attorney Chi found that under California Assembly Bill 857 the proposed structure and operations of public banks in general and more specifically, PBEB’s proposal, would be in compliance with the California Constitution. Attorney Chi’s memo follows:

To: Friends of Public Bank East Bay
From: Sylvia Chi
Re: Section 6, Article XVI of the California Constitution and the Proposed Public Bank of the East Bay Date: October 21, 2021

Introduction
In 2019, Governor Gavin Newsom signed into law AB 857, establishing the nation’s first framework for licensing and regulating city- and county-owned public banks. Under this law, California cities and counties can apply to the Department of Financial Protection and Innovation (DFPI) for a license to operate a public bank.

Prior to a local agency submitting a license application to DFPI, AB 857 requires local agencies to conduct a study to assess the viability of the proposed public bank and specifies mandatory elements of the study. Various elements of this study are specified in the law, including:

A legal analysis of whether the proposed structure and operations of the public bank would likely comply with Section 6 of Article XVI of the California Constitution, but nothing herein shall compel the waiver of any attorney -client privilege attaching to that legal analysis.

Gov. Code § 57606(a)(5).

This memorandum analyzes Section 6 of Article XVI of the California Constitution and its interpretation by the courts, its implications for AB 857 public banks in general, and provides a preliminary assessment of its application to the structure and operations of the proposed Public Bank East Bay. This memorandum is intended to provide a starting point for the legal analysis required in the Gov. Code § 57606(a)(5).

The proposed structure and operations of any AB 857 public bank, and the proposed public bank to serve the East Bay in particular, is likely to comply with Section 6 of Article XVI of the California

41 Constitution. The Legislature’s findings in AB 857 establish that the extension of the state’s credit for the creation of public banks qualify for the public purpose exception to the Constitution’s prohibition on subscribing for stock. This prohibition would not apply to AB 857 public banks, since the law requires that such public banks take the form of nonprofit corporations which do not issue stock.

Section 6, Article XVI of the California Constitution
Section 6, Article XVI of the California Constitution prohibits the California State Legislature from making public gifts. Specifically, Section 6 imposes three types of restrictions on the Legislature:

1. No giving, lending, or authorizing giving/lending of credit of the State or any of its political subdivisions

2. No gifts, or authorizing making of any gifts, of public money or things of value

3. No authorizing the State, or any political subdivision thereof, to subscribe for stock or become a stockholder in any corporation
After these prohibitions were added to the Constitution, and because many contemporaneous activities of the Legislature appeared to violate them, the courts recognized a “public purpose exception” to resolve the apparent contradiction. This “public purpose exception” applies where an expenditure of public funds or extension of credit is made in furtherance of a public purpose, i.e. expenditures “which may tend to make that government subserve the general well-being of society….” Veterans' Welfare Board v. Jordan, 189 Cal. 124, 141 (1922). It is well settled that such expenditures for a public purpose “are not a gift within the meaning of [Section 6 of Article XVI]” because “an expenditure for a ‘public purpose’ is in the nature of consideration and the funds expended are therefore not a gift even though private persons are benefited therefrom.” County of Alameda v. Janssen, 16 Cal.2d 276, 281 (1940).

In addition to direct expenditures made or authorized by the Legislature, the courts have applied the public purpose exception to the lending of public credit. For example, the California Supreme Court confirmed the constitutionality of the Veterans' Welfare Bond Act of 1921, which authorized the lending of public credit through the issuance and sale of state bonds to assist war veterans in acquiring property.

Jordan at 140-1. Likewise, the California Supreme Court upheld the constitutionality of the Zenovich- Moscone-Chacon Housing and Home Finance Act (Health & Saf. Code § 51000 et seq.), which authorized the California Housing Finance Agency to issue revenue bonds, the proceeds of which would be made available to both public and private housing developers in the form of various types of loans to encourage the construction of housing, as well as the purchase of loans from mortgage lenders and refinancing of existing mortgages. Cal. Hous. Fin. Agency v. Elliott, 17 Cal.3d 575 (1976). In Elliott, the court found that the Act did not violate the constitutional prohibition against the extension of public credit, citing the close relationship between elements of the program and the broad public purposes supporting the program, as identified by the Legislature. Id. at 586.

In general, courts defer to the Legislature’s discretion regarding what constitutes a public purpose, as long as that determination has a reasonable basis. County of Alameda v. Janssen, 16 Cal.2d 276, 282 (1940). Thus, courts have upheld against constitutional challenges a “wide variety of welfare and other social programs.” County of Alameda v. Carleson, 5 Cal.3d 730, 746 (1971). The Court held in Jordan that an action is not made unconstitutional if, “incidental to the main [public] purpose there was an

42 advantage to the purchaser of the land ultimately derived from the credit of the state.” Jordan at 141. In Carleson, the California Supreme Court analyzed the challenged state action, disregarding a portion of a household’s earned income in determining eligibility for welfare, and found that “the Legislature could reasonably conclude… that employment incentives are essential to accomplish the goal of self - sufficiency, and that the income-disregard provision was a necessary and proper device for encouraging employment.” Carleson at 746.

The public purpose exception has not been recognized by courts as applicable to the third type of restriction in Section 6, Article XVI, regarding subscribing for stock in any corporation. The California Supreme Court has upheld state legislation creating city or county housing authorities, finding that this action did not constitute subscribing for stock or becoming a stockholder in a corporation, since the housing authorities “are public corporations and do not issue stock.” The Housing Authority v.

Dockweiler, 14 Cal.2d 437 (1939). Although they are not binding, California’s Office of the Attorney General has issued several opinions interpreting this clause, finding that it “operated to prohibit public retirement funds from operating in common stock” and applied to “all public bodies and agencies in the state whose powers and functions are derived from the Legislature,” including hospital, transit, and water districts, but not charter cities. See Ops. Cal. Atty. Gen. No. 83-1002 (1984), 10 n.10.

Section 6, Article XVI of the California Constitution Likely Does Not Apply to AB 857 Public Banks in General
The legislative findings in Section 1 of AB 857 specify that the Legislature’s intent was to “authorize the lending of public credit to public banks and authorize public ownership of public banks for the purpose of achieving cost savings, strengthening local economies, supporting community economic development, and addressing infrastructure and housing needs for localities.” In enacting AB 857, the Legislature determined that the lending of public credit to public banks served the public purposes of achieving cost savings, strengthening local economies, supporting community economic development, and addressing localities’ infrastructure and housing needs. Although such legislative findings are not binding upon courts, courts give them great weight unless they are found to be unreasonable and arbitrary. In the case of public banks proposed under AB 857, courts are likely to find that the Legislature acted reasonably in concluding that establishing a public banking system is necessary and proper to accomplish the broad economic purposes identified in the findings, thus applying the public purpose exception to any public bank organized under AB 857.

As discussed in Part II, supra, the courts have found that a “public purpose” exception applies to the California Constitution’s Section 6, Article XVI prohibition on giving public money and credit, but have not found such an exception to the prohibition on subscribing for stock in corporations. However, as provided in AB 857, public banks must take the form of either a nonprofit mutual benefit corporation or nonprofit public benefit corporation. See Gov. Code § 57600(b)(1). Neither type of nonprofit corporation provides for the issuance of stock. Thus, consistent with both Dockweiler and the Attorney General’s opinion, it seems likely that courts would find that the constitutional prohibition on subscribing for stock does not apply to the creation of AB 857 public banks as nonprofit corporations.

43 Section 6, Article XVI of the California Constitution Likely Does Not Apply to the Proposed Public Bank East Bay’s Structure and Operations While local agency owners of a public bank may be described as “shareholders,” the Corporations Code describes nonprofit corporation “owners” as “members.” In the case of the proposed Public Bank East Bay, the members of the public bank have not been finalized, but may include cities such as Oakland, Berkeley, and Richmond, as well as Alameda County and potentially other cities and/or counties. As required by AB 857, the proposed Public Bank East Bay will be organized as either a nonprofit mutual benefit corporation or nonprofit public benefit corporation, and, as discussed in Part III, supra, neither type of corporation issues stock.

At this stage, the proposed public bank’s potential activities include lending to government agencies, small businesses, minority-owned businesses, worker cooperatives, and affordable housing developers.

If these lending activities are ultimately approved by the local agency owners and Board of Directors of the proposed Public Bank East Bay, it is likely that a court would find that the local agencies acted reasonably in authorizing such activities. Even if particular individuals or businesses, such as minority- owned businesses or private sector affordable housing developers, benefit from the public bank’s lending activities, these benefits are incidental to the main public purpose of the lending activities.

Because these activities are closely related with the broad public purposes expressed in AB 857 regarding supporting community economic development and meeting local needs for infrastructure, and housing, it is likely that a court would apply the public purpose exception to the lending of public credit for the proposed Public Bank East Bay.

While the details of the structure and operations of the proposed Public Bank East Bay have yet to be fully developed, the high-level plan does not appear to introduce any obstacles that would implicate the prohibitions in Section 6, Article XVI of the California Constitution.

44 Appendix C

About This Study

This study was directed and written by Tom Sgouros, with writing assistance from Dawn Euer.

Tom Sgouros has worked for over 33 years as a policy consultant specializing in public budgeting, finance, taxation, and other technical issues of public policy. He has consulted to campaigns and office- holders, to activists and media outlets, and has been invited to testify about public finance issues to legislatures in four states. He was Senior Policy Advisor to the Rhode Island General Treasurer, and is now a fellow at The Policy Lab at Brown University, where he is also a member of the research faculty in Computer Science, working on projects in data science, visualization, and information theory.

Dawn Euer owns the Law Office of Dawn Euer in Rhode Island where she works with nonprofits, social enterprises, and small businesses. She also serves as a State Senator in the Rhode Island Senate where she is Chair of the Environment & Agriculture Committee and a member of the Judiciary Committee and the Rules, Ethics & Oversight Committee.

Attorney Sylvia Chi, a co-author of AB 857, provided the legal analysis included as Appendix B.

We had extensive professional assistance from Gary Findley, principal banking attorney at The Findley Companies, and Graham Seel, Strategic advisor to community banks and community development non- profits. Friends of the Public Bank East Bay conducted significant research and editing on the final document. Primary contributors include Susan Harman, Debbie Notkin, George Quaye, and Benjamin Streim. Additional help was provided by Alexis Frasz, Thomas Hanna, Margie Lewis, Valerie Myers, and George Syrop.

Friends of the Public Bank East Bay commissioned the Oakland-based organization Bay Area Organization of Black Owned Businesses to conduct a survey of the borrowing needs of Black-owned small businesses in the East Bay. The final report is published as “Borrowing Needs of Black Owned Businesses.”
To inform the research on potential lending demand and programs, Friends of the Public Bank East Bay met and spoke with the following experts. For the purposes of clarity, the people on this list have not reviewed the final Study and are not necessarily endorsers or supporters of this effort. ● José Quiñones, CEO, Mission Asset Fund (small business lending)

● Sara Razavi, CEO, Working Solutions (small business lending)

● Scott Lewis, CFO, Main Street Launch (small business lending)

● Tom Duryea, CEO, Summit Bank (small business lending)

45 ● Shanna McClearn, Director, Sales & Partnerships, Accion Opportunity Fund (small business lending)

● David Green, CEO, 1st NorCal Credit Union (small business lending)

● YaVette Holts, CEO, Bay Area Organization of Black Owned Businesses (BAOBOB) (small business lending)
● Dan Leibsohn, CEO, Community Development Finance (small business lending)

● Sally Smith, Community Development Underwriter, LISC Bay Area (affordable housing lending)

● Aubra Levine, Director of Real Estate Development, Unity Council (affordable housing lending)

● Eve Stewart, Director of Real Estate Development, Satellite Affordable Housing Associates (SAHA) (affordable housing lending)

● Louis Chicoine, CEO, Abode Services (affordable housing lending)

● Jim Lutz, local green energy consultant (electrification)

● Michael Theroux, California environmental project consultant (green project opportunities)

● Renee Roy Elias, recently at Center for Community Innovation (UC Berkeley) (small business landscape)

46 Appendix D

Local Community Banks and CDFIs

List of community banks and Community Development Financial Institutions (CDFIs) that are doing business in the East Bay and are potential partners for public bank lending programs

Community Banks County Headquarters Assets
Fremont Bank Alameda County $5.1B
Beneficial State Bank Alameda County $1.2B
Community Bank of the Bay Alameda County $600M
Summit Bank Alameda County $300M
Metropolitan Bank Alameda County $180M
Gateway Bank F.S.B. Alameda County $170M
United Business Bank Contra Costa County $2.3B
California Bank of Commerce Contra Costa County $1.9B
Amalgamated Bank New York (strong presence in the Bay
Area, recently acquired local New
Resources Bank)
$4.7B

CDFIs Headquarters
Cooperative Center Federal
Credit Union
Berkeley
Self-Help Federal Credit Union Oakland
ICA Fund Oakland
Main Street Launch Oakland
Accion Opportunity Fund San Jose
Pacific Community Ventures Oakland
Community Vision San Francisco
Low Income Investment Fund
(LIIF)
San Francisco
SixUp Lending San Francisco
Mission Economic Development
Agency
San Francisco
Mission Asset Fund San Francisco
Working Solutions San Francisco
Capital Impact Partners Arlington, VA
RSF Social Finance San Francisco

47 Other local lending institutions
that are mission aligned and
potential partners for PBEB
Headquarters
C-Note Oakland
The Runway Project Oakland
CDC Small Business Finance San Diego
Oakland Black Business Fund Oakland
Kapor Capital Oakland
Kiva San Francisco
Local Initiatives Support
Corporation (LISC)
Nationwide, Oakland
Cutting Edge Capital Oakland
TMC Community Capital Oakland
The Bay’s Future Oakland
REAL People’s Fund Oakland
Community Development Finance Oakland

48 Appendix E
Next Steps

Finalize Viability Study Determine initial estimates of capital, proposed loan priorities, and governance structure.

Pass Viability Study Cities approve resolution and appoint representative to Friends. If needed, a
mend investment policy to include ability to invest in public banks. Appoint representative to be point person for each agency to help design business plan.

Form 501(c)(6) Mutual
Benefit Corporation
This is the legal structure for initial members. As the County of Alameda cannot be a founding member without a county-wide referendum process, this corporation will begin with the founding charter cities with paperwork in place so that the County can join immediately after the application is approved.

Recruit and hire CEO The CEO will work with the banking attorney in writing the business plan. By requirements of the regulators, this person must be in place when the application is submitted.

Develop Business Plan Involves identifying capitalization sources and deposits to be moved into the PBEB. Requires a full financial model, detailed explanations/assumptions, corporate governance, and more. To be led by the Friends' banking consultant and the CEO.

Finalize
Governance
Structure
Finalize and approve Bank governance plan to be included in the charter application.

Finalize Bank
Board
Applicants
Confirm applicants for the initial Board of Directors for the Bank, who will be included and vetted in the charter application process. Banking consultant performs upfront/initial vetting. Agencies will select who will represent them on Board.

Host Pre-Filing
Meeting
Pre-f iling meeting with the California Department for Financial Protection and Innovation (DFPI), all proposed Board Directors, business plan consultant and CEO.

49 Approve Business Plan
Locally
City Councils review and obtain formal authorization to apply for a public ba
nking charter.

Submit Business Plan Submit charter application to DFPI and Federal Deposit Insurance Corporation. Submitted by banking consultant on behalf of the agencies.

Bank Staffing & Setup Infrastructure, technology, hiring, etc. (pending application approval), all led by the CEO.

Application Review Business plan will undergo rounds of feedback and modification, led by the r
egulators and managed for all other parties by the banking consultant and CEO.

Federal Reserve
Approval
Gain access to Federal Reserve services, including ACH and discount window.

Transfer Capital &
Deposits
Place f unds into the Bank.

Cut the Ribbon! Loans and other initiatives begin.

Berkeley City Councilmember
Mark Humbert, District 8
2180 Milvia Street, 5th Floor
Berkeley, CA 94704
[email protected]
www.MarkHumbert.com

CONSENT CALENDAR
April 11, 2023
To: Members of the Berkeley City Council
From: Councilmember Mark Humbert (Author)
Councilmember Rigel Robinson (co-sponsor)
Subject: Budget Referral: Fully fund the City’s 50-50 Sidewalk Repair Program

RECOMMENDATION
Refer $2.2 million to the FY 24 Mid-Biennial Budget Update for the purpose of fully funding clearance of the existing backlog in Berkeley’s 50-50 Sidewalk Repair Program.

Refer an additional $1 million per year (above the existing $1 million baseline funding for sidewalk repair) to future budget processes to ensure all of Berkeley’s sidewalks are kept in a state of good repair.

SUMMARY
Providing safe, passable sidewalks is one of the most basic functions of any City government. The City’s 50-50 sidewalk repair program splits sidewalk repair costs 50- 50 between the City and property owners. Although Berkeley has made progress in addressing cracked and uneven sidewalks, there is a significant backlog of maintenance requests in the 50-50 repair program. It is estimated that $2.2 million would be necessary to clear this backlog. It is further estimated that an additional $1 million per year in regular sidewalk maintenance funding (in addition to the current $1 million baseline) would be necessary to avoid the creation of a new backlog. Repairing Berkeley’s sidewalks more expeditiously has the potential to save the City money in the long run and help fulfill the City’s mobility, equity, and climate action goals.

FINANCIAL IMPLICATIONS
$2.2 million in General Fund impacts in the first year (FY 24), decreasing to an additional $1 million in General Fund impacts annually (above current baseline) thereafter.

Due to the nature of the backlog and the City's practice of contracting with outside firms for repair, it is expected that these amounts will allow the 50-50 program to easily scale up without requiring significant additional staff time or additional hires.

BACKGROUND
Property owners in Berkeley are responsible for maintaining the sidewalks adjacent to

Budget Referral: Consent Calendar
Fully fund the City’s 50-50 Sidewalk Repair Program April 11th, 2023

their property in a safe condition, including repairing cracks, deterioration, and other damage. (BMC 16.04.010) To repair a damaged sidewalk, property owners can choose to hire a contractor at their own cost, or request support from the City in repairing the sidewalk through the 50-50 program. The City will perform the repair, then bill the property owner for half the cost. City staff review requests to be added to the 50-50 program. If a request is approved, the City adds the property owner to a waitlist. Being on the waitlist does not relieve property owners of their responsibility to maintain a safe and usable sidewalk.

CURRENT SITUATION AND ITS EFFECTS
Berkeley’s Measure T1 has provided additional funding for sidewalk repairs through the City’s 50-50 program. This has allowed the City to make progress on the sidewalk repair backlog, reducing it from over ten years to perhaps 3–4 years.1 However, an estimated 350–450 properties remain on the waitlist, with new properties being added each year.

This results in a significant number of sidewalks remaining uncomfortable or even potentially hazardous for pedestrians longer than they should.

RATIONALE FOR RECOMMENDATION
Fixing damaged sidewalks is something the City must do eventually, and doing so sooner has the potential to save City resources. Although owners are responsible under state and local law for maintaining sidewalks adjacent to their properties and can be legally liable in the event someone is injured, “trip and falls” remain a significant source of claims against the City, costing staff time and sometimes settlement money—even if a court might hypothetically not ultimately find the City liable. Additionally, regardless of who may be liable, injuries resulting from poor pavement conditions are a burden on those who experience the injury, the medical system, and economic productivity.

Damaged sidewalks are also a deterrent to walking and other forms of alternative transportation and tend to have an outsized effect on the mobility of seniors and people with disabilities. Poor quality sidewalks are difficult to safely navigate, present greater dangers for at-risk groups, and thus discourage people and certain populations in particular from walking for pleasure or everyday tasks.

Front-loading these fixes and then consistently providing the resources to ensure sidewalks remain in a state of good repair can allow residents and the City to enjoy greater benefits and overall cost savings over time. Given that the City will presumably need to eventually fix these sidewalks anyway, the difference in total direct costs over 1 “Berkeley’s sidewalk repair backlog is shrinking,” Berkeleyside, Dec. 26, 2022, https://www.berkeleyside.org/2022/12/26/berkeleys-sidewalk-repair-backlog-is-shrinking

Budget Referral: Consent Calendar
Fully fund the City’s 50-50 Sidewalk Repair Program April 11th, 2023

the long run would be negligible. Moreover, as with roads, sidewalk repair costs tend to compound over time (with early interventions preventing more expensive future failures). Frontloading these repairs could actually result in overall direct cost savings.

ENVIRONMENTAL SUSTAINABILITY AND CLIMATE IMPACTS
Because this item is fundamentally about accelerating planned repairs to existing infrastructure rather than expanding infrastructure, this item is not anticipated to result in direct sustainability or climate impacts above and beyond what is already anticipated from planned maintenance/repair.

However, this action has the potential to indirectly improve sustainability and climate action outcomes by encouraging alternatives to driving. In the Climate Action Plan and Resilience Update originally planned to be presented by staff at Council’s March 14th, 2023 meeting2, it was reported that transportation accounted for nearly half of Berkeley’s greenhouse gas (GHG) emissions in 2020. Given that use of transportation in general was down significantly in 2020 as a result of the pandemic, it’s reasonable to assume that the proportion of Berkeley’s GHG emissions attributable to transportation has risen again—perhaps to the roughly 60% that had been seen in the times prior to the pandemic. This expectation is consistent with the conclusions of the staff report.

Since transportation generates such a large proportion of Berkeley’s GHG emissions and since walking is a low-emissions form of mobility, encouraging more walking by ensuring that sidewalks are safe and pleasant to use can help reduce GHG emissions from transportation in Berkeley.

Encouraging walking in this way is also consistent with Berkeley’s Climate Action Plan and its Electric Mobility Roadmap, both of which seek to reduce reliance on automotive transportation and instead encourage alternatives like walking, biking, transit, and electric micro-mobility devices. Since people on bikes, scooters, and transit are also likely to be pedestrians for some portion of their journey, sidewalk conditions are very important to their safety, comfort, and willingness to use these non-car mobility options.

CONTACT PERSON
Councilmember Mark Humbert District 8 510-981-7180

ATTACHMENTS

1. City of Berkeley Sidewalk Repair Page
2 Climate Action Plan and Resilience Update, Berkeley City Council, March 14, 2023 https://berkeleyca.gov/sites/default/files/documents/2023-03- 14%20Item%2023%20Climate%20Action%20Plan.pdf

Budget Referral: Consent Calendar
Fully fund the City’s 50-50 Sidewalk Repair Program April 11th, 2023

2. Berkeleyside Story - Berkeley’s sidewalk repair backlog is shrinking

Sidewalk Repair | City of Berkeley https://berkeleyca.gov/city-services/streets-sidewalks-sewers-and-utilitie... 1 of 4 3/15/2023, 2:32 PM

Sidewalk Repair | City of Berkeley https://berkeleyca.gov/city-services/streets-sidewalks-sewers-and-utilitie... 2 of 4 3/15/2023, 2:32 PM

Sidewalk Repair | City of Berkeley https://berkeleyca.gov/city-services/streets-sidewalks-sewers-and-utilitie... 3 of 4 3/15/2023, 2:32 PM

Berkeley’s sidewalk repair backlog is shrinking https://www.berkeleyside.org/2022/12/26/berkeleys-sidewalk-repair-ba... 1 of 5 3/15/2023, 2:34 PM

Berkeley’s sidewalk repair backlog is shrinking https://www.berkeleyside.org/2022/12/26/berkeleys-sidewalk-repair-ba... 2 of 5 3/15/2023, 2:34 PM

Berkeley’s sidewalk repair backlog is shrinking https://www.berkeleyside.org/2022/12/26/berkeleys-sidewalk-repair-ba... 5 of 5 3/15/2023, 2:34 PM

Kate Harrison
Councilmember, District 4
2180 Milvia Street, Berkeley, CA 94704 Tel: 510.981.7140 TDD: 510.981.6903 E-Mail: [email protected]

REVISED AGENDA MATERIAL
Meeting Date: March 29, 2023
Item Number: 35
Item Description: Adopt Ordinance Adding Chapter 2.102 to the Berkeley Municipal Code to Establish a Labor Peace Policy Minimizing Labor/Management Conflict in Berkeley Marina Zone
Submitted by: Councilmember Harrison
 Updated transmittal to remove reference to the SFO Airport Commission labor peace policy.
 In consultation with the City Attorney:
o Added a definition for “City Manager” to include “or designee” and clarified that “Hospitality Operation” is an operation primarily engaging in food and beverage service.
o Clarified the process for an Employer’s request for excuse from entering into a Labor Peace Agreement as including a mutually-agreed arbitrator, or the Council in the case the Employer and Labor Organization do not agree.
o Clarified that employers with fewer than 10 employees are exempt from the Chapter.

Kate Harrison
Councilmember, District 4

CONSENT CALENDAR
March 21April 11, 2023
To: Honorable Mayor and Members of the City Council
From: Councilmember Harrison (Author), Mayor Arreguín (Co-sponsor), Councilmember Taplin (Co-sponsor) and Councilmember Bartlett (Co- sponsor)
Subject: Adopt Ordinance Adding Chapter 2.102 to the Berkeley Municipal Code to Establish a Labor Peace Policy Minimizing Labor/Management Conflict in Berkeley Marina Zone
RECOMMENDATION:

Adopt Ordinance Adding Chapter 2.102 to the Berkeley Municipal Code (BMC) to Establish a Labor Peace Policy minimizing labor/management conflict in Berkeley Marina Zone.

CURRENT SITUATION AND RATIONALE FOR RECOMMENDATION
The City of Berkeley owns a number of recreational, hospitality and food services properties in the Berkeley Marina and Waterfront. In maintaining these properties, the City has multiple interests, including providing superior facilities for residents and visitors, generating steady income from rents and fees supporting operations, supporting a harmonious labor and business environment, and supporting the Marina Fund.

The City is in the process of finalizing an exclusive negotiation agreement for former HS Lordships Restaurant property located at 199 Seawall Dr, Berkeley, CA 94710. It is in the public interest to avoid high profile and disruptive labor disputes that may arise between tenants, businesses, workers, and labor groups associated with this property and other properties in the Marina Zone.

In recent years, throughout the state of California and elsewhere in the United States, there has been an increase in labor disputes in the hospitality industry. In 2018 workers at HS Lordships restaurant walked out in the middle of brunch in protest of the severance offered by HS Lordships owners. Last year, workers at the DoubleTree Hotel joined nationwide protests to draw attention to the fact that they have been working without a contract since 2018 and their desire for better pay and healthcare benefits.

Adopt Ordinance Adding Chapter 2.102 to the Berkeley Municipal Code to Establish a Labor Peace Policy Minimizing Labor/Management Conflict in Berkeley Marina Zone

CONSENT CALENDAR
March 21April 11, 2023
2 Through adopting a Labor Peace Agreement requirement for businesses operating in the Marina, Berkeley can protect its proprietary interest by preventing service and revenue disruptions while simultaneously facilitating a policy that has contributed to mutually beneficial relations between management and labor in other jurisdictions.

BACKGROUND
Berkeley is a world-class tourist destination, welcoming more than a million visitors annually. The Marina, often recognized as the crown jewel of Berkeley, offers multiple parks, recreation facilities, and restaurants and hotel accommodations. The City Berkeley holds in trust pursuant to the Public Trust Tidelands grant from the State of California property along and near the City’s waterfront known as the Berkeley Marina Zone, a major tourist hub and destination. The City leases its real property along and near the Marina Zone facilities to Hospitality Operation companies, and in so doing faces the same risks and liabilities as private businesses participating in management of similar facilities. As a result, the City has an ongoing proprietary interest in the management and use of that Marina real property and harbor facilities and must make prudent business decisions, as would any private business, to ensure efficient and cost- effective management of its business concerns, and to maximize public benefit and minimize risk.

The City’s Marina Fund operates as an enterprise fund and therefore funds its activities outside of the general fund through fees, grants, and rents. The City has a strong interest in ensuring that operations and amenities continue to run smoothly to the benefit of residents and visitors alike.

This ordinance is intended to maximize the returns and minimize the risk to the City’s proprietary interest resulting from possible conflict between employers leasing, and operating hospitality operations on City property, and labor organizations, arising out of union organizing campaigns, labor negotiations, and disruption that may be caused by such conflict. Experience of public entities and private employers demonstrates that union organizing drives and union efforts to secure representation rights and an initial collective bargaining agreement can deteriorate into protracted and acrimonious conflict. Such conflict threatens the City’s proprietary interest when private employers enter into leases to use City property, and labor conflict could jeopardize base rent payments or rent payments calculated on a percentage of sales. That threat is most acute during the period when a labor organization (1) seeks to gain recognition as the collective bargaining representative for employees and (2) if recognized, seeks a first contract with the employer.

The sole purpose of this ordinance is to protect the City’s proprietary interest in the hospitality operation leases. This ordinance does not favor any particular procedure for determining employee preference, or lack of preference, regarding labor organization representation, or the outcome of any such procedure; skew such procedures to favor or hinder any party; interfere with the negotiation, terms, or scope of a first contract, if applicable; or express or implement any generally applicable policy regarding private sector labor/management relations, or regulate those relations in any way.

Adopt Ordinance Adding Chapter 2.102 to the Berkeley Municipal Code to Establish a Labor Peace Policy Minimizing Labor/Management Conflict in Berkeley Marina Zone

CONSENT CALENDAR
March 21April 11, 2023
3 Other jurisdictions, including the Oakland Airport, BART, Port of San Francisco, the San Francisco International Airport (SFO), and Asilomar State Beach have all implemented Labor Peace Agreement policies at their respective properties requiring businesses to execute a Labor Peace Agreements to prevent disruptive management and labor disputes.1
As illustrated by SFO Airport Commission regulations, labor peace agreements may include “card check” provisions whereby the employer agrees to a neutral procedure for determining whether employees wish to be represented by a labor organization for collective bargaining.2 Under card check, a neutral third party verifies employee union cards in lieu of holding a formal election. In addition, agreements may include provisions 1 Labor Peace Agreement Policy - Port of Oakland; Labor Peace Agreement Policy for Transit Oriented Development Hotel Operations – BART; Labor Peace Policy - Port of San Francisco; Labor Peace/Card Check Rule – SFO.
2 Appendix C, Labor Peace/Card Check Rule, SFO Airport Commission, https://www.flysfo.com/sites/default/files/media/sfo/about-sfo/2014%20R&R%20Appx%20C%20- %20Labor%20Peace-Card%20Check%20Program.pdf.

Adopt Ordinance Adding Chapter 2.102 to the Berkeley Municipal Code to Establish a Labor Peace Policy Minimizing Labor/Management Conflict in Berkeley Marina Zone

CONSENT CALENDAR
March 21April 11, 2023
4 requiring the Employer to be neutral during the organizing campaign and/or to provide access to worksites by employers.3
The proposed ordinance specifies that the City will not execute hospitality operations leases or make substantial amendments providing for the use, development, or operation of a hospitality operation within the Marina Zone in which the City has a proprietary interest, unless and until the project applicant, developer, or owner, and any operator or manager of the hospitality operation has provided evidence that it has entered into a Labor Peace Agreement. This requirement also applies to any future subcontractor, tenant, sub-lessee, or manager that operates the Hospitality Operation.

The ordinance ensures that these requirements are express components of any request for proposal, request for qualifications, or other similar solicitation for a hospitality operation projects in the Marina Zone.

FISCAL IMPACTS OF RECOMMENDATION
City Attorney staff time will be necessary to implement the respective requirements in leases, requests for proposals, and other documents.

ENVIRONMENTAL SUSTAINABILITY
Not applicable.

CONTACT PERSON
Councilmember Kate Harrison, (510) 981-7140
Attachments:

1. Draft Ordinance Adding BMC 2.102
3 Labor Peace Agreements - U.S. Chamber.
https://www.uschamber.com/assets/archived/images/documents/files/labor_peace_agreements_2013 _09_12.pdf.

1 ORDINANCE NO. –N.S.

ADDING CHAPTER 2.102 TO THE BERKELEY MUNICIPAL CODE

TO ESTABLISH A LABOR PEACE POLICY MINIMIZING LABOR/MANAGEMENT

CONFLICT IN BERKELEY MARINA ZONE
BE IT ORDAINED by the Council of the City of Berkeley as follows:

Section 1. That Chapter 2.102 of the Berkeley Municipal Code is added to read as follows:

Chapter 2.102

LABOR PEACE POLICY - MINIMIZING LABOR-MANAGEMENT CONFLICT IN

BERKELEY MARINA ZONE
Sections:

2.102.010 Findings and Purpose.

2.102.020 Definitions.

2.102.030 City of Berkeley—Labor Peace Policy

2.102.040 Procedures to Minimize Disruption Caused by Labor/Management Conflict.

2.102.050 Applicability and Exemptions.

2.102.060 Prospective Effect.

2.102.070 Preemption.

2.102.080 Severability.

2 2.102.010 Findings and Purpose.

The Council of the City of Berkeley finds and declares as follows:

A. Berkeley is a world-class tourist destination, welcoming more than a million visitors annually. The City of Berkeley holds in trust pursuant to the Public Trust Tidelands grant from the State of California property along and near the City’s waterfront known as the Berkeley Marina Zone, a major tourist hub and destination. The City leases its real property along and near the Marina Zone facilities to Hospitality Operation companies, and in so doing faces the same risks and liabilities as private businesses participating in management of similar facilities. As a result, the City has an ongoing Proprietary Interest in the management and use of that Marina real property and harbor facilities and must make prudent business decisions, as would any private business, to ensure efficient and cost-effective management of its business concerns, and to maximize benefit and minimize risk.

B. This Chapter is intended to maximize the returns and minimize the risk to the City’s Proprietary Interest resulting from possible conflict between Employers leasing, and operating Hospitality Operations on City property, and Labor Organizations, arising out of union organizing campaigns, labor negotiations, and disruption that may be caused by such conflict. Experience of public entities and private employers demonstrates that union organizing drives and union efforts to secure representation rights and an initial collective bargaining agreement can deteriorate into protracted and acrimonious conflict. Such conflict threatens the City’s Proprietary Interest when private employers enter into leases to use City property, and labor conflict could jeopardize base rent payments or rent payments calculated on a percentage of sales. That threat is most acute during the period when a Labor Organization (1) seeks to gain recognition as the collective bargaining representative for Employees and (2) if recognized, seeks a First Contract with the Employer.

C. The sole purpose of this Chapter is to protect the City’s Proprietary Interest in the Hospitality Operation Leases. This Chapter does not favor any particular procedure for determining employee preference, or lack of preference, regarding Labor Organization representation, or the outcome of any such procedure; skew such procedures to favor or hinder any party; interfere with the negotiation, terms, or scope of a First Contract, if applicable; or express or implement any generally applicable policy regarding private sector labor/management relations, or regulate those relations in any way.

2.102.020 Definitions.
“City Manager" means the City Manager of the City of Berkeley or their designee. “Demand for Recognition Period” means the period during which the Labor Organization seeks recognition as the collective bargaining representative of the Employees. “Economic Action” means concerted action initiated or conducted by a Labor Organization, or Employees acting in concert with a Labor Organization, at the Employees’ worksite, to bring economic pressure to bear on an Employer, as part of a campaign to organize Employees or prospective Employees of that Employer, or in attempting to secure a First Contract, if applicable. “Economic Action” includes such activities as striking, picketing, or boycotting. “Economic Action” does not include a lawsuit to enforce this Chapter.
“Employee” means anyone performing work for an Employer for compensation relating to Hospitality Operations on a full-time, part-time, seasonal, or temporary basis,

3 including those made available to work for the Employer through a temporary service, staffing agency, or similar agency.
“Employer” means any person or entity, including a subcontractor, with Employees engaged in Hospitality Operations.
“Hospitality Operations Lease” means a lease, sublease, license, sublicense, or other means of granting the right to a Hospitality Operation to use Marina Zone property, in which the City receives rent, a flat fee, or a charge. An “Hospitality Operations Lease” must be for a term of at least 12 months.
“Hospitality Operation” shall mean any hotel or motel operation, conference center, restaurant, bar, or other operation primarily engaging in food and beverage service, operation meeting the criteria specified in Section 2.102.050. “Hospitality Operations” means any work done by Employees at or relating to a Hospitality Operation under a Hospitality Operation Lease. “First Contract” means the first enforceable contract entered into between an Employer and a Labor Organization setting one or more terms or conditions of employment. “First Contract Period” means, if a Labor Organization is recognized as the collective bargaining representative of Employees, the period between such recognition and execution of a First Contract.
“Labor Organization” means any organization of any kind, or any agency or employee representation committee, in which Employees participate and which exists for the purpose, in whole or part, of dealing with Employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or other terms and conditions of employment.
“Labor Peace Agreement” shall mean a binding and enforceable agreement with any Employer and a Labor Organization that represents or seeks to represent Hospitality Operations workers, as described more fully in Section 2.102.040. “Marina Zone” shall mean all land held in trust by the City of Berkeley pursuant to the Public Trust Tidelands grant from the State of California to the City of Berkeley, Stats. 1962, Ch. 55; specifically, Aquatic Park and all land, including submerged land, which is west of Marina Boulevard as it is presently constructed and as if it were extended, in both northerly and southerly directions, to the Berkeley city limits and all land north of Spinnaker Way as it is presently constructed and as if it were extended to the shoreline, to the east, and to the Berkeley city limits, to the west. “Proprietary Interest” means any nonregulatory arrangement or circumstance in which the City has a financial or other nonregulatory interest including any of the following:
(1) through a lease of real property that is owned by the City and used for the Hospitality Operation, the City receives ongoing revenue, excluding government fees, tax revenue, or assessment revenue, or similar fees and revenues, except for tax revenue under the circumstances specified in paragraphs (2) and (3) of this subsection; (2) the City receives ongoing revenue from the Hospitality Operation to repay loans provided by the City to assist in the development or operation of the project; (3) the City receives ongoing revenue from the Hospitality Operation to pay debt service on bonds provided by the City to assist in the development of the project; (4) the City has assets at risk because it has agreed to underwrite or guarantee the development of the hospitality operation or loans related to the hospitality operation; or (5) the City has an ongoing economic and non-regulatory interest at risk in the financial success of a Hospitality Operation which is likely to be adversely affected by labor- management conflict, except that no interest shall be considered economic and non-

4 regulatory if it arises from the exercise of regulatory or police powers such as taxation (except as set forth in paragraphs (2) and (3) of this subsection), zoning, or the issuance of permits or licenses.
“Parties” means an Employer and Labor Organization that has requested to be, or has been, recognized as the collective bargaining representative of Employees. “Pre-existing Lease” means any Hospitality Operation Lease entered into before the effective date of this Chapter.
“Subcontract” means any agreement between the authorized tenant, licensee, or other user under a Hospitality Operation Lease and another person or entity that contemplates or permits that other person or entity to operate or manage all or a portion of the Hospitality Operations.
“Subcontractor” means the person or entity that operates or manages all or a portion of Hospitality Operations under a Subcontract.
“Substantial Amendment” means an amendment to, or the City’s discretionary renewal or extension of:
(1) A lease of Marina Zone property entered into before the effective date of this Chapter that did not include Hospitality Operations but is expanded to include Hospitality Operations; or
(2) A Pre-existing Lease that provides for, or permits, any of the following:
(i) A new term that extends the duration of the lease beyond that provided in the Pre-existing Lease;
(ii) The right to construct improvements to support or serve Hospitality Operations, if not previously allowed under the Pre-existing Lease;
(iii) Rent credits or potential rent credits to a Marina Zone Hospitality Operation tenant that may be applied against 25% or more of the fixed rent under the Pre-existing Lease during the period in which the rent credits may be used; or (iv) Rent credits or potential rent credits to a Marina Zone Hospitality Operation tenant that may be applied against 50% or more of the remaining percentage or participation rent (not including any portion of the rent), if any, under the Pre-existing Lease during the period in which the rent credits may be used.

2.102.030 City of Berkeley—Labor Peace Policy
A. The City shall not execute Hospitality Operations Lease or Substantial Amendment providing for the use, development, or operation of a Hospitality Operation within the Marina Zone in which the City has a proprietary interest, unless and until the project applicant, developer, or owner, and any operator or manager of the Hospitality Operation has provided evidence that it has entered into a Labor Peace Agreement covering the Hospitality Operations as specified pursuant to Section 2.102.040.

B. Each such Hospitality Operations Lease or other contract or agreement shall further require that any future Subcontractor, tenant, sub-lessee, or manager that operates the Hospitality Operation shall be required to enter into a Labor Peace Agreement as specified under Section 2.102.040.

C. The City shall make these requirements express components of any request for proposal, request for qualifications, or other similar solicitation for a Hospitality Operation projects.

2.102.040 Procedures to Minimize Disruption Caused by Labor/Management Conflict.

5 A. An Employer who receives a written request by a Labor Organization to enter into a Labor Peace Agreement shall:
(1) Inform the City Manager, within five business days of receiving the request, that a Labor Organization seeking to represent its Employees has requested the Employer to enter into a Labor Peace Agreement required by this Chapter; (2) Enter into a Labor Peace Agreement, with the Labor Organization as to the Employees it seeks to represent, containing the following provisions:
(i) The Labor Organization, on behalf of itself and its members, in exchange for good and valuable consideration agrees not to engage in Economic Action against the Employer during the Demand for Recognition Period, and should the Labor Organization be recognized, the First Contract Period;
(3) Upon the City Manager’s request, promptly provide to the City Manager a report attesting to the status of the Employer’s compliance with the requirements of this Section 2.102.040, including a statement by any Labor Organization that has requested that the Employer enter into a Labor Peace Agreement certifying the accuracy of the Employer’s report; and
(4) Include as a material term in any Subcontract a provision requiring the Subcontractor(s) to comply with this Chapter. This provision shall be a material and mandatory term of such Subcontract, and shall state: “Berkeley Municipal Code Chapter 2, commencing at Section 2.102.040, which applies to [Subcontractor], incorporated herein by reference. To the extent [Subcontractor] employs Employees in Hospitality Operations within the scope of Berkeley Municipal Code 2.102.040, [Subcontractor] hereby agrees as a material condition of this subcontract to enter into and abide by a Labor Peace Agreement with a Labor Organization or Organizations that represents, or seeks to represent, [Subcontractor’s] Employees, if and as required by Chapter 2, and to otherwise fully comply with the requirements of that Chapter.” B. In the event that an Employer is unable to agree to terms of a negotiate a Labor Peace Agreement with a Labor Organization within thirty (30) days of a written request by a Llabor Organization for a Labor Peace Agreement, the Employer it may file a request with the Berkeley City Council to be excused from such obligations with respect to that Labor Organization. The Employer and Labor Organization may agree to have the Employer’s request for excuse heard by a mutually-agreed upon arbitrator for final and binding arbitration. If the Employer and Labor Organization do not agree to have the Employer’s request for excuse heard by an arbitrator, then a public hearing shall be held by the City Council on the Employer’s request for excuse. Notice of the public hearing shall be sent at least ten days before the public hearing date to the requesting Employer and the subject Labor Organization. The hearing shall be conducted in the same manner as public hearings for land use, zoning, landmarks, and public nuisance matters.

The arbitrator or Council may approve a request by Tthe Employer may to be relieved of and excused from its obligations under this Section 2.102.040(A) with respect to the subject Labor Organization if the arbitrator or Council, after hearing, finds , after holding the noticed hearing, that forcing requiring the Employer to adhere to the requirements ofcomply with this Section 2.102.040(A) would be detrimental to the City’s Proprietary Interests because: a. the Employer has attempted in good faith to reach a Labor Peace Agreement with the subject Labor Organization, and b. the Labor Organization has (i) refused to negotiate in good faith to reach a Labor Peace Agreement or (ii) placed condition(s) on Labor Peace Agreement that are arbitrary and capricious, in light of

6 practices at other, similar venues that are subject to governmental labor peace requirements. The decision of the arbitrator or Council on the Employer’s request for excuse under this section shall be final and not subject to further review.

DC. The City Manager shall include in every Hospitality Operation Lease a provision requiring the tenant, and any Employers operating under the Hospitality Operation Lease, to comply with the requirements of this Chapter and all other applicable laws.

2.102.050 Applicability and Exemptions.

A. This Chapter shall not apply to any Employer that does not employ employees in a Hospitality Operation. The City Manager shall determine the applicability of an exemption under this subsection A. on a case-by-case basis. Any Employer claiming an exemption must submit a written request, including the evidentiary basis for the exemption, to the City Manager within five business days of receiving a request to enter into a Labor Peace Agreement. The Employer shall have the burden of proving that an exemption is applicable.

B. This Chapter shall not apply to an Employer if:
(1) The City has no Proprietary Interest in the Hospitality Operation Lease under which the Employer operates a Hospitality Operation, or a Hospitality Operation Lease in which the City’s cumulative investment, or the present value of its expected revenues, is less than $100,000;The Employer employs fewer than ten (10) employees; (2) The Employer operates under a Pre-existing Lease. This exemption applies to an Employer for the duration of such Pre-existing Lease unless the Pre-Existing Lease is subject to a Substantial Amendment after the effective date of this Ordinance; (3) The Employer is a signatory to valid and binding collective bargaining agreement(s) covering all of its Employees at the Marina Zone property; (4) The Employer is a governmental agency, and the law would prohibit application of this Chapter;
C. Nothing in this Ordinance shall require or compel an employee to be a member of any labor organization, nor shall it require the developer, operator or any tenant, subcontractor, or sub-tenant of a Hospitality Operation to recognize a labor organization as the bargaining representative for its employees or to enter into a collective bargaining agreement with any labor organization.

2.102.060 Prospective Effect.

This Chapter is intended to have prospective effect only. This Chapter shall be interpreted to avoid violating any laws that prevent the City from impairing obligations under any Pre-existing Lease.

2.102.070 Preemption.

Nothing in this Chapter shall be interpreted or applied so as to create any right, power, or duty in conflict with any Federal or State law.

2.102.080 Severability.

If any word, phrase, sentence, part, section, subsection, or other portion of this Chapter, or any application thereof to any person or circumstance is declared void, unconstitutional, or invalid for any reason, then such word, phrase, sentence, part,

7 section, subsection, or other portion, or the prescribed application thereof, shall be severable, and the remaining provisions of this Chapter, and all applications thereof, not having been declared void, unconstitutional or invalid, shall remain in full force and effect. The City Council hereby declares that it would have passed this title, and each section, subsection, sentence, clause and phrase thereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases had been declared invalid or unconstitutional.

Section 2. Copies of this Ordinance shall be posted for two days prior to adoption in the display case located near the walkway in front of the Maudelle Shirek Building, 2134 Martin Luther King Jr. Way. Within 15 days of adoption, copies of this Ordinance shall be filed at each branch of the Berkeley Public Library and the title shall be published in a newspaper of general circulation.

Kate Harrison
Councilmember, District 4

ACTION CALENDAR
April 11, 2023
(Continued from March 21, 2023)
To: Honorable Mayor and Members of the City Council
From: Councilmember Harrison (Author), Mayor Arreguín (Co-sponsor), Councilmember Taplin (Co-sponsor) and Councilmember Bartlett (Co- sponsor)
Subject: Adopt Ordinance Adding Chapter 2.102 to the Berkeley Municipal Code to Establish a Labor Peace Policy Minimizing Labor/Management Conflict in Berkeley Marina Zone
RECOMMENDATION:

Adopt Ordinance Adding Chapter 2.102 to the Berkeley Municipal Code (BMC) to Establish a Labor Peace Policy minimizing labor/management conflict in Berkeley Marina Zone.

CURRENT SITUATION AND RATIONALE FOR RECOMMENDATION
The City of Berkeley owns a number of recreational, hospitality and food services properties in the Berkeley Marina and Waterfront. In maintaining these properties, the City has multiple interests, including providing superior facilities for residents and visitors, generating steady income from rents and fees supporting operations, supporting a harmonious labor and business environment, and supporting the Marina Fund.

The City is in the process of finalizing an exclusive negotiation agreement for former HS Lordships Restaurant property located at 199 Seawall Dr, Berkeley, CA 94710. It is in the public interest to avoid high profile and disruptive labor disputes that may arise between tenants, businesses, workers, and labor groups associated with this property and other properties in the Marina Zone.

In recent years, throughout the state of California and elsewhere in the United States, there has been an increase in labor disputes in the hospitality industry. In 2018 workers at HS Lordships restaurant walked out in the middle of brunch in protest of the severance offered by HS Lordships owners. Last year, workers at the DoubleTree Hotel joined nationwide protests to draw attention to the fact that they have been working without a contract since 2018 and their desire for better pay and healthcare benefits.

Adopt Ordinance Adding Chapter 2.102 to the Berkeley Municipal Code to Establish a Labor Peace Policy Minimizing Labor/Management Conflict in Berkeley Marina Zone

ACTION CALENDAR
April 11, 2023
2 Through adopting a Labor Peace Agreement requirement for businesses operating in the Marina, Berkeley can protect its proprietary interest by preventing service and revenue disruptions while simultaneously facilitating a policy that has contributed to mutually beneficial relations between management and labor in other jurisdictions.

BACKGROUND
Berkeley is a world-class tourist destination, welcoming more than a million visitors annually. The Marina, often recognized as the crown jewel of Berkeley, offers multiple parks, recreation facilities, and restaurants and hotel accommodations. The City Berkeley holds in trust pursuant to the Public Trust Tidelands grant from the State of California property along and near the City’s waterfront known as the Berkeley Marina Zone, a major tourist hub and destination. The City leases its real property along and near the Marina Zone facilities to Hospitality Operation companies, and in so doing faces the same risks and liabilities as private businesses participating in management of similar facilities. As a result, the City has an ongoing proprietary interest in the management and use of that Marina real property and harbor facilities and must make prudent business decisions, as would any private business, to ensure efficient and cost- effective management of its business concerns, and to maximize public benefit and minimize risk.

The City’s Marina Fund operates as an enterprise fund and therefore funds its activities outside of the general fund through fees, grants, and rents. The City has a strong interest in ensuring that operations and amenities continue to run smoothly to the benefit of residents and visitors alike.

This ordinance is intended to maximize the returns and minimize the risk to the City’s proprietary interest resulting from possible conflict between employers leasing, and operating hospitality operations on City property, and labor organizations, arising out of union organizing campaigns, labor negotiations, and disruption that may be caused by such conflict. Experience of public entities and private employers demonstrates that union organizing drives and union efforts to secure representation rights and an initial collective bargaining agreement can deteriorate into protracted and acrimonious conflict. Such conflict threatens the City’s proprietary interest when private employers enter into leases to use City property, and labor conflict could jeopardize base rent payments or rent payments calculated on a percentage of sales. That threat is most acute during the period when a labor organization (1) seeks to gain recognition as the collective bargaining representative for employees and (2) if recognized, seeks a first contract with the employer.

The sole purpose of this ordinance is to protect the City’s proprietary interest in the hospitality operation leases. This ordinance does not favor any particular procedure for determining employee preference, or lack of preference, regarding labor organization representation, or the outcome of any such procedure; skew such procedures to favor or hinder any party; interfere with the negotiation, terms, or scope of a first contract, if applicable; or express or implement any generally applicable policy regarding private sector labor/management relations, or regulate those relations in any way.

Adopt Ordinance Adding Chapter 2.102 to the Berkeley Municipal Code to Establish a Labor Peace Policy Minimizing Labor/Management Conflict in Berkeley Marina Zone

ACTION CALENDAR
April 11, 2023
3 Other jurisdictions, including the Oakland Airport, BART, Port of San Francisco, the San Francisco International Airport (SFO), and Asilomar State Beach have all implemented Labor Peace Agreement policies at their respective properties requiring businesses to execute a Labor Peace Agreements to prevent disruptive management and labor disputes.1
As illustrated by SFO Airport Commission regulations, labor peace agreements may include “card check” provisions whereby the employer agrees to a neutral procedure for determining whether employees wish to be represented by a labor organization for collective bargaining.2 Under card check, a neutral third party verifies employee union cards in lieu of holding a formal election. In addition, agreements may include provisions 1 Labor Peace Agreement Policy - Port of Oakland; Labor Peace Agreement Policy for Transit Oriented Development Hotel Operations – BART; Labor Peace Policy - Port of San Francisco; Labor Peace/Card Check Rule – SFO.
2 Appendix C, Labor Peace/Card Check Rule, SFO Airport Commission, https://www.flysfo.com/sites/default/files/media/sfo/about-sfo/2014%20R&R%20Appx%20C%20- %20Labor%20Peace-Card%20Check%20Program.pdf.

Adopt Ordinance Adding Chapter 2.102 to the Berkeley Municipal Code to Establish a Labor Peace Policy Minimizing Labor/Management Conflict in Berkeley Marina Zone

ACTION CALENDAR
April 11, 2023
4 requiring the Employer to be neutral during the organizing campaign and/or to provide access to worksites by employers.3
The proposed ordinance specifies that the City will not execute hospitality operations leases or make substantial amendments providing for the use, development, or operation of a hospitality operation within the Marina Zone in which the City has a proprietary interest, unless and until the project applicant, developer, or owner, and any operator or manager of the hospitality operation has provided evidence that it has entered into a Labor Peace Agreement. This requirement also applies to any future subcontractor, tenant, sub-lessee, or manager that operates the Hospitality Operation.

The ordinance ensures that these requirements are express components of any request for proposal, request for qualifications, or other similar solicitation for a hospitality operation projects in the Marina Zone.

FISCAL IMPACTS OF RECOMMENDATION
City Attorney staff time will be necessary to implement the respective requirements in leases, requests for proposals, and other documents.

ENVIRONMENTAL SUSTAINABILITY
Not applicable.

CONTACT PERSON
Councilmember Kate Harrison, (510) 981-7140
Attachments:

1. Draft Ordinance Adding BMC 2.102
3 Labor Peace Agreements - U.S. Chamber.
https://www.uschamber.com/assets/archived/images/documents/files/labor_peace_agreements_2013 _09_12.pdf.

1 ORDINANCE NO. –N.S.

ADDING CHAPTER 2.102 TO THE BERKELEY MUNICIPAL CODE

TO ESTABLISH A LABOR PEACE POLICY MINIMIZING LABOR/MANAGEMENT

CONFLICT IN BERKELEY MARINA ZONE
BE IT ORDAINED by the Council of the City of Berkeley as follows:

Section 1. That Chapter 2.102 of the Berkeley Municipal Code is added to read as follows:

Chapter 2.102

LABOR PEACE POLICY - MINIMIZING LABOR-MANAGEMENT CONFLICT IN

BERKELEY MARINA ZONE
Sections:

2.102.010 Findings and Purpose.

2.102.020 Definitions.

2.102.030 City of Berkeley—Labor Peace Policy

2.102.040 Procedures to Minimize Disruption Caused by Labor/Management Conflict.

2.102.050 Applicability and Exemptions.

2.102.060 Prospective Effect.

2.102.070 Preemption.

2.102.080 Severability.

2 2.102.010 Findings and Purpose.

The Council of the City of Berkeley finds and declares as follows:

A. Berkeley is a world-class tourist destination, welcoming more than a million visitors annually. The City of Berkeley holds in trust pursuant to the Public Trust Tidelands grant from the State of California property along and near the City’s waterfront known as the Berkeley Marina Zone, a major tourist hub and destination. The City leases its real property along and near the Marina Zone facilities to Hospitality Operation companies, and in so doing faces the same risks and liabilities as private businesses participating in management of similar facilities. As a result, the City has an ongoing Proprietary Interest in the management and use of that Marina real property and harbor facilities and must make prudent business decisions, as would any private business, to ensure efficient and cost-effective management of its business concerns, and to maximize benefit and minimize risk.

B. This Chapter is intended to maximize the returns and minimize the risk to the City’s Proprietary Interest resulting from possible conflict between Employers leasing, and operating Hospitality Operations on City property, and Labor Organizations, arising out of union organizing campaigns, labor negotiations, and disruption that may be caused by such conflict. Experience of public entities and private employers demonstrates that union organizing drives and union efforts to secure representation rights and an initial collective bargaining agreement can deteriorate into protracted and acrimonious conflict. Such conflict threatens the City’s Proprietary Interest when private employers enter into leases to use City property, and labor conflict could jeopardize base rent payments or rent payments calculated on a percentage of sales. That threat is most acute during the period when a Labor Organization (1) seeks to gain recognition as the collective bargaining representative for Employees and (2) if recognized, seeks a First Contract with the Employer.

C. The sole purpose of this Chapter is to protect the City’s Proprietary Interest in the Hospitality Operation Leases. This Chapter does not favor any particular procedure for determining employee preference, or lack of preference, regarding Labor Organization representation, or the outcome of any such procedure; skew such procedures to favor or hinder any party; interfere with the negotiation, terms, or scope of a First Contract, if applicable; or express or implement any generally applicable policy regarding private sector labor/management relations, or regulate those relations in any way.

2.102.020 Definitions.
“Demand for Recognition Period” means the period during which the Labor Organization seeks recognition as the collective bargaining representative of the Employees. “Economic Action” means concerted action initiated or conducted by a Labor Organization, or Employees acting in concert with a Labor Organization, at the Employees’ worksite, to bring economic pressure to bear on an Employer, as part of a campaign to organize Employees or prospective Employees of that Employer, or in attempting to secure a First Contract, if applicable. “Economic Action” includes such activities as striking, picketing, or boycotting. “Economic Action” does not include a lawsuit to enforce this Chapter.
“Employee” means anyone performing work for an Employer for compensation relating to Hospitality Operations on a full-time, part-time, seasonal, or temporary basis,

3 including those made available to work for the Employer through a temporary service, staffing agency, or similar agency.
“Employer” means any person or entity, including a subcontractor, with Employees engaged in Hospitality Operations.
“Hospitality Operations Lease” means a lease, sublease, license, sublicense, or other means of granting the right to a Hospitality Operation to use Marina Zone property, in which the City receives rent, a flat fee, or a charge. An “Hospitality Operations Lease” must be for a term of at least 12 months.
“Hospitality Operation” shall mean any hotel or motel operation, conference center, restaurant, bar, or other food and beverage service operation meeting the criteria specified in Section 2.102.050.
“Hospitality Operations” means any work done by Employees at or relating to a Hospitality Operation under a Hospitality Operation Lease. “First Contract” means the first enforceable contract entered into between an Employer and a Labor Organization setting one or more terms or conditions of employment. “First Contract Period” means, if a Labor Organization is recognized as the collective bargaining representative of Employees, the period between such recognition and execution of a First Contract.
“Labor Organization” means any organization of any kind, or any agency or employee representation committee, in which Employees participate and which exists for the purpose, in whole or part, of dealing with Employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or other terms and conditions of employment.
“Labor Peace Agreement” shall mean a binding and enforceable agreement with any Employer and a Labor Organization that represents or seeks to represent Hospitality Operations workers, as described more fully in Section 2.102.040. “Marina Zone” shall mean all land held in trust by the City of Berkeley pursuant to the Public Trust Tidelands grant from the State of California to the City of Berkeley, Stats. 1962, Ch. 55; specifically, Aquatic Park and all land, including submerged land, which is west of Marina Boulevard as it is presently constructed and as if it were extended, in both northerly and southerly directions, to the Berkeley city limits and all land north of Spinnaker Way as it is presently constructed and as if it were extended to the shoreline, to the east, and to the Berkeley city limits, to the west. “Proprietary Interest” means any nonregulatory arrangement or circumstance in which the City has a financial or other nonregulatory interest including any of the following:
(1) through a lease of real property that is owned by the City and used for the Hospitality Operation, the City receives ongoing revenue, excluding government fees, tax revenue, or assessment revenue, or similar fees and revenues, except for tax revenue under the circumstances specified in paragraphs (2) and (3) of this subsection; (2) the City receives ongoing revenue from the Hospitality Operation to repay loans provided by the City to assist in the development or operation of the project; (3) the City receives ongoing revenue from the Hospitality Operation to pay debt service on bonds provided by the City to assist in the development of the project; (4) the City has assets at risk because it has agreed to underwrite or guarantee the development of the hospitality operation or loans related to the hospitality operation; or (5) the City has an ongoing economic and non-regulatory interest at risk in the financial success of a Hospitality Operation which is likely to be adversely affected by labor- management conflict, except that no interest shall be considered economic and non-

4 regulatory if it arises from the exercise of regulatory or police powers such as taxation (except as set forth in paragraphs (2) and (3) of this subsection), zoning, or the issuance of permits or licenses.
“Parties” means an Employer and Labor Organization that has requested to be, or has been, recognized as the collective bargaining representative of Employees. “Pre-existing Lease” means any Hospitality Operation Lease entered into before the effective date of this Chapter.
“Subcontract” means any agreement between the authorized tenant, licensee, or other user under a Hospitality Operation Lease and another person or entity that contemplates or permits that other person or entity to operate or manage all or a portion of the Hospitality Operations.
“Subcontractor” means the person or entity that operates or manages all or a portion of Hospitality Operations under a Subcontract.
“Substantial Amendment” means an amendment to, or the City’s discretionary renewal or extension of:
(1) A lease of Marina Zone property entered into before the effective date of this Chapter that did not include Hospitality Operations but is expanded to include Hospitality Operations; or
(2) A Pre-existing Lease that provides for, or permits, any of the following:
(i) A new term that extends the duration of the lease beyond that provided in the Pre-existing Lease;
(ii) The right to construct improvements to support or serve Hospitality Operations, if not previously allowed under the Pre-existing Lease;
(iii) Rent credits or potential rent credits to a Marina Zone Hospitality Operation tenant that may be applied against 25% or more of the fixed rent under the Pre-existing Lease during the period in which the rent credits may be used; or (iv) Rent credits or potential rent credits to a Marina Zone Hospitality Operation tenant that may be applied against 50% or more of the remaining percentage or participation rent (not including any portion of the rent), if any, under the Pre-existing Lease during the period in which the rent credits may be used.

2.102.030 City of Berkeley—Labor Peace Policy
A. The City shall not execute Hospitality Operations Lease or Substantial Amendment providing for the use, development, or operation of a Hospitality Operation within the Marina Zone in which the City has a proprietary interest, unless and until the project applicant, developer, or owner, and any operator or manager of the Hospitality Operation has provided evidence that it has entered into a Labor Peace Agreement covering the Hospitality Operations as specified pursuant to Section 2.102.040.

B. Each such Hospitality Operations Lease or other contract or agreement shall further require that any future Subcontractor, tenant, sub-lessee, or manager that operates the Hospitality Operation shall be required to enter into a Labor Peace Agreement as specified under Section 2.102.040.

C. The City shall make these requirements express components of any request for proposal, request for qualifications, or other similar solicitation for a Hospitality Operation projects.

2.102.040 Procedures to Minimize Disruption Caused by Labor/Management Conflict.

5 A. An Employer who receives a written request by a Labor Organization to enter into a Labor Peace Agreement shall:
(1) Inform the City Manager, within five business days of receiving the request, that a Labor Organization seeking to represent its Employees has requested the Employer to enter into a Labor Peace Agreement required by this Chapter; (2) Enter into a Labor Peace Agreement, with the Labor Organization as to the Employees it seeks to represent, containing the following provisions:
(i) The Labor Organization, on behalf of itself and its members, in exchange for good and valuable consideration agrees not to engage in Economic Action against the Employer during the Demand for Recognition Period, and should the Labor Organization be recognized, the First Contract Period;
(3) Upon the City Manager’s request, promptly provide to the City Manager a report attesting to the status of the Employer’s compliance with the requirements of this Section 2.102.040, including a statement by any Labor Organization that has requested that the Employer enter into a Labor Peace Agreement certifying the accuracy of the Employer’s report; and
(4) Include as a material term in any Subcontract a provision requiring the Subcontractor(s) to comply with this Chapter. This provision shall be a material and mandatory term of such Subcontract, and shall state: “Berkeley Municipal Code Chapter 2, commencing at Section 2.102.040, which applies to [Subcontractor], incorporated herein by reference. To the extent [Subcontractor] employs Employees in Hospitality Operations within the scope of Berkeley Municipal Code 2.102.040, [Subcontractor] hereby agrees as a material condition of this subcontract to enter into and abide by a Labor Peace Agreement with a Labor Organization or Organizations that represents, or seeks to represent, [Subcontractor’s] Employees, if and as required by Chapter 2, and to otherwise fully comply with the requirements of that Chapter.” B. In the event that an Employer is unable to agree to terms of a Labor Peace Agreement with a Labor Organization within thirty (30) days of a written request by a labor Organization for a Labor Peace Agreement, the Employer may file a request with the Berkeley City Council to be excused from such obligations with respect to that Labor Organization. A public hearing shall be held by the City Council on the Employer’s request for hearing. Notice of the public hearing shall be sent at least ten days before the public hearing date to the requesting Employer and the subject Labor Organization.

The hearing shall be conducted in the same manner as public hearings for land use, zoning, landmarks, and public nuisance matters. The Council may approve a request by the Employer to be relieved of and excused from its obligations under this Section

2.102.040(A) with respect to the subject Labor Organization if the Council finds, after holding the noticed hearing, that forcing the Employer to adhere to the requirements of this Section 2.102.040(A) would be detrimental to the City’s Proprietary Interests because: a. the Employer has attempted in good faith to reach a Labor Peace Agreement with the subject Labor Organization, and b. the Labor Organization has (i) refused to negotiate in good faith to reach a Labor Peace Agreement or (ii) placed condition(s) on Labor Peace Agreement that are arbitrary and capricious, in light of practices at other, similar venues that are subject to governmental labor peace requirements.

C. The City Manager shall include in every Hospitality Operation Lease a provision requiring the tenant, and any Employers operating under the Hospitality Operation Lease, to comply with the requirements of this Chapter and all other applicable laws.

6 2.102.050 Applicability and Exemptions.

A. This Chapter shall not apply to any Employer that does not employ employees in a Hospitality Operation. The City Manager shall determine the applicability of an exemption under this subsection A. on a case-by-case basis. Any Employer claiming an exemption must submit a written request, including the evidentiary basis for the exemption, to the City Manager within five business days of receiving a request to enter into a Labor Peace Agreement. The Employer shall have the burden of proving that an exemption is applicable.

B. This Chapter shall not apply to an Employer if:
(1) The City has no Proprietary Interest in the Hospitality Operation Lease under which the Employer operates a Hospitality Operation, or a Hospitality Operation Lease in which the City’s cumulative investment, or the present value of its expected revenues, is less than $100,000;
(2) The Employer operates under a Pre-existing Lease. This exemption applies to an Employer for the duration of such Pre-existing Lease unless the Pre-Existing Lease is subject to a Substantial Amendment after the effective date of this Ordinance; (3) The Employer is a signatory to valid and binding collective bargaining agreement(s) covering all of its Employees at the Marina Zone property; (4) The Employer is a governmental agency, and the law would prohibit application of this Chapter;
C. Nothing in this Ordinance shall require or compel an employee to be a member of any labor organization, nor shall it require the developer, operator or any tenant, subcontractor, or sub-tenant of a Hospitality Operation to recognize a labor organization as the bargaining representative for its employees or to enter into a collective bargaining agreement with any labor organization.

2.102.060 Prospective Effect.

This Chapter is intended to have prospective effect only. This Chapter shall be interpreted to avoid violating any laws that prevent the City from impairing obligations under any Pre-existing Lease.

2.102.070 Preemption.

Nothing in this Chapter shall be interpreted or applied so as to create any right, power, or duty in conflict with any Federal or State law.

2.102.080 Severability.

If any word, phrase, sentence, part, section, subsection, or other portion of this Chapter, or any application thereof to any person or circumstance is declared void, unconstitutional, or invalid for any reason, then such word, phrase, sentence, part, section, subsection, or other portion, or the prescribed application thereof, shall be severable, and the remaining provisions of this Chapter, and all applications thereof, not having been declared void, unconstitutional or invalid, shall remain in full force and effect. The City Council hereby declares that it would have passed this title, and each section, subsection, sentence, clause and phrase thereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases had been declared invalid or unconstitutional.

7 Section 2. Copies of this Ordinance shall be posted for two days prior to adoption in the display case located near the walkway in front of the Maudelle Shirek Building, 2134 Martin Luther King Jr. Way. Within 15 days of adoption, copies of this Ordinance shall be filed at each branch of the Berkeley Public Library and the title shall be published in a newspaper of general circulation.

Office of the City Manager
2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7000 ● TDD: (510) 981-6903 ● Fax: (510) 981-7099 E-Mail: [email protected] Website: http://www.CityofBerkeley.info/Manager

ACTION CALENDAR
April 11, 2023
To: Honorable Mayor and Members of the City Council
From: Dee Williams-Ridley, City Manager
Submitted by: Sharon Friedrichsen, Budget Manager
Subject: Unfunded Liability Obligations and Unfunded Infrastructure Needs

RECOMMENDATION
That the City Council takes the following actions:

1. Accept the Unfunded Liability Obligations and Unfunded Infrastructure Needs report

2. Receive a presentation on Pensions and Other-Post Employment Benefits tonight and provide staff with direction

3. Schedule for either the April 25, 2023 City Council Meeting or at a later date to be determined a presentation and discussion on Unfunded Infrastructure Needs

INTRODUCTION
On May 29, 2012, the City Council adopted Resolution No. 65,748 N.S. “Requiring that the City Manager Develop and Publish a Biennial Report of Current City Liabilities and Projections of Future Liabilities. The purpose of this report is to provide a thorough overview of the City’s long-term expenditure obligations in a format that is easily understandable in a single report. As indicated below, the enacting Resolution stipulates that information pertaining to personnel-related costs, City-issued bonds, capital assets and infrastructure be included within the report as follows:

1. Employee and retiree benefit costs over a 10-year horizon

2. Costs for current active employees including:
a. total payroll costs for active employees during the current year; b. projected payroll costs for the same number of employees for the next 10- year period with costs increases based on MOU’s with bargaining units.

3. A summary of all current City obligations including:
a. general obligation bonds;
b. revenue bonds.

Unfunded Liability Obligations and Unfunded Infrastructure Needs ACTION CALENDAR April 11, 2023

4. Summary of all capital assets and infrastructure including:
a. Appraisal of Public Buildings valued at $5 million or more b. Condition of Streets and Roads using the “Street Saver” information projecting costs to bring streets and roads condition to an average Pavement Condition Index (PCI) of 75 within 5 years.
c. Sewers: updated asset management plan for public sewers including projected costs for succeeding 5 years and projected revenue from sewer fees for the succeeding 5 years.

This report is required to be published every two years, in the second year of the biennial budget, in advance of the Council’s consideration of the upcoming biennial budget. Instead of preparing a two-year budget for FY 2022 & FY 2023, the City prepared a one-year budget for FY 2022 and subsequently prepared a two-year budget for FY 2023 & FY 2024. Therefore, this report is being presented in the first year of the biennial budget to adhere to the two-year reporting requirement.

The projections in this report were developed by staff in the City Manager’s Budget Office and the Finance Department, with the assistance of several financial advisors including the City’s sales tax consultant and actuaries. Revenues are, of course, sensitive to normal business cycles as well as unanticipated economic volatility. Thus, it is important that the City continue its fiscally prudent planning to balance expenditures against projected revenues while addressing employee compensation as well as historically underfunded infrastructure needs.

SUMMARY
The following is a summary of key points that will be explained in detail in this report:
 Due to projected increases in personnel expenses, the City currently projects a General Fund structural deficit in FY 2025 through FY 2027.  The City has a significant pension liability that is anticipated to grow due to recent financial losses experienced by CalPERS. Also, of note, the City’s pension contributions for all City employees are anticipated to increase more than $32 million over the next ten years putting a strain on resources and services.  The City’s retiree health plans are significantly underfunded with the funded status of the City’s plans ranging from a low of 6.93% to a high of 51.22%.  Due to the age of the City’s infrastructure and limited resources allocated to infrastructure, the City’s unfunded infrastructure needs have increased over the years and is anticipated to range around $2.52 billion from FY 2024 to FY 2028.  Despite the recent adoption of Measure T1 and Measure O, the City has an aggregate bond tax rate for FY 2023 of 0.0623% (which represents $62.30 for each $100,000 in assessed value (“A.V”), which is below the historical peak of approximately $95 (per $100,000 in A.V) in tax year 1999-2000.

Unfunded Liability Obligations and Unfunded Infrastructure Needs ACTION CALENDAR April 11, 2023

CURRENT SITUATION AND ITS EFFECTS

1. Employee and Retiree Benefit costs over a 10-year horizon a. CalPERS Retirement Benefits
The City provides retirement benefits for employees through its participation in the California Public Employees’ Retirement System (CalPERS). This is a defined benefit pension plan funded by a combination of employee contributions that are set by statute and employer contributions that fluctuate from year to year based on an annual actuarial valuation performed by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Benefits are based on years of credit service, equal to one year of full-time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits.

On January 1, 2013, the Public Employee Pension Reform Act (PEPRA) went into effect.

The State law applies to employees hired after January 1, 2013, who are new to CalPERS.

These employees are termed PEPRA members and employees that were enrolled in CalPERS (without significant separation) prior to January 1, 2013, are now referred to as “classic” members.1
The City contributes to three plans in the CalPERS system: (1) Police Safety Plan, (2) Fire Safety Plan, and (3) Miscellaneous Employee Plan. Each plan has a different rate for the City’s annual employer contribution that is generally based on the demographics of the plan participants and the value of investment returns of the City’s assets in the CalPERS system.

In addition, employees’ contributions vary by plan based on negotiated Memorandum of Understandings (MOU).

In 2013, the CalPERS Board voted to change the actuarial model for the pension plans and certain actuarial assumptions upon which rates are based. First, the model anticipated that the plans would be 100 percent funded in a fixed 30-year time period. Second, the time period to “smooth out” the impacts of CalPERS’ investment losses due to the recession was reduced from 15 years to 5 years. Finally, the rates were structured in such a way that the first five years were considered to be a “ramp up” period to improve the plans funded percentage. That meant that Fiscal Years 2016-2020 were expected to have higher rates, and the years following were projected to plateau for some time before decreasing in the last five years of the 30-year funding period.

In February 2014, the CalPERS Board voted to retain its current long-term assumed rate of return of 7.5 percen,t but adopted new mortality assumptions due to the fact that retirees are living longer. As a result of the new assumptions, the cost of employer contributions increased, again.
1 PEPRA miscellaneous members are enrolled in a 2% at 62 plan and PEPRA safety members (Fire and Police) are enrolled in a 2.7% at 57 plan. PEPRA members are required to pay half the normal cost of their plans.

Unfunded Liability Obligations and Unfunded Infrastructure Needs ACTION CALENDAR April 11, 2023

In December 2016, the CalPERS Board lowered the discount rate from 7.50 percent to

7.00 percent using a three-year phase in beginning with the June 30, 2016 actuarial valuation. The employer contribution for FY 2020 was calculated using a discount rate of 7.25 percent. CalPERS reduced the return rate to 7.25 percent in July 2018, with a futher reduction to 7.0 percent. CalPERS lowered the discount rate because the agency determined that achieving a 7.5 percent rate of return was now far less likely. The result of this lowered discount rate is that liabilities have grown and the City’s pension contributions have significantly increased.

Changes to the Unfunded Actuarial Liability (UAL) due to actuarial gains or losses, as well as changes in actuarial assumptions or methods, are amortized using a 5-year ramp up. This method phases in the impact of changes in UAL over a 5-year period and attempts to minimize employer cost volatility from year to year. As a result, however, required contributions can change gradually, but significantly, over the next five years.

Effective with the June 30, 2019, actuarial valuation, the CalPERS Board adopted a new amortization policy that shortens the period over which actuarial gains or losses are amortized from 30 years to 20 years with the payments computed using a level dollar amount. In addition, the new policy removes the 5-year ramp-up and ramp-down on UAL bases attributable to assumption changes and non-investment gains or losses.

These changes will apply only to new UAL bases established on or after June 30, 2019.

In July 2021, high investment returns triggered an automatic discount rate reduction from 7 percent to 6.8 percent. This automatic reduction was the result of the Funding Risk Mitigation Policy put in place by the CalPERS Board of Directors in 2015, which was designed to lower the discount rate in years of extraordinary investment returns to reduce future funding risk over time.

For FY 2022, CalPERS announced a -6.1 percent net return on investments. This is obviously below CalPERS assumed 6.8 percent discount rate. As a result, the City’s pension contributions will likely increase for miscellaneous employees plan by 2-4 percent and safety members by 4-6 percent for fiscal year 2024-25.

With respect to future liabilities for the costs of these plans, the City has regularly retained an outside actuary to review the CalPERS’ estimates and provide independent actuary estimates that the City can use in budget planning. The chart below provides CalPERS payment amounts for FY 2023 and FY 2024 as provided to the city by CalPERS. The outside actuary provided estimated payment amounts for FY 2025 through FY 2034.

Unfunded Liability Obligations and Unfunded Infrastructure Needs ACTION CALENDAR April 11, 2023

There are a couple of important points about the chart. The first is that over the next 10 years there is close to an estimated $32 million dollar increase in pension costs to the City from FY 2025 to FY 2034. The next point is that regardless of the City’s financial position the payments will have to be made to CalPERS. This financial challenge will require us to be fiscally prudent over this period of time.

The changes made by CalPERS in the last few years are planned to achieve 100% funding for all plans within a 30-year time period. This means that there will be sufficient funds held in each plan to pay obligations for all inactive participants (including retirees) and benefits as a result of prior service for actives.

The funded status of a pension plan is defined as the ratio of assets to a plan’s accrued liabilities. Based on the CalPERS’ actuarial valuations as of June 30, 2021, the City’s plans are currently funded as follows: Miscellaneous 80.1%; Police Safety 68.7%; and Fire Safety

80.9%.

On June 26, 2018, Council authorized the City Manager to establish an IRS Section 115 Pension Trust Fund (“Trust”). The Trust can act as a rate stabilization fund and can be used to ease budgetary pressures resulting from unanticipated spikes in employer contribution rates. On May 14, 2019, Council authorized the City Manager to execute a contract with Keenan Financial Services to establish, maintain, and invest the Trust.

The Trust currently has a balance of $14,762,850.42 as of June 30, 2022 and receives funding through transfers from the General Fund and Capital Improvement Fund and savings from annually prepaying the City’s CalPERS payment.

FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 Misc. 41.64 40.57 43.51 44.21 47.10 49.53 54.80 57.35 59.69 59.15 61.00 61.18 Police 20.04 20.32 21.47 22.43 23.59 24.71 26.74 27.94 28.96 29.52 30.19 30.32 Fire 10.58 10.24 10.97 11.54 12.24 12.89 14.27 14.96 15.57 15.80 16.24 16.28 Total 72.26 71.13 75.95 78.18 82.93 87.13 95.81 100.25 104.22 104.47 107.43 107.78 FY 2023 and FY 2024 are based on amounts provided by CalPERS.

FY 2025 through FY 2034 amounts are based on actuary's projections.

Rates used reflect current MOU agreements: Miscellaneous includes the 8% employee share paid by the City on behalf of the employee as well as the negotiatied employee's contribution to the employer rate.

Future Payments to California Public Employees Retirement System All Plans (dollars in millions) Fund Name Valuation Date Actuarial Source Estimated Liablity Plan Assets Unfunded
Liability
%
Funded
Miscellaneous 6/30/2021 CalPERS 1,181.2$ 946.3 $ 234.90 $ 80.1% Police 6/30/2021 CalPERS 483.8$ 332.5 $ 151.30 $ 68.7% Fire 6/30/2021 CalPERS 306.7$ 248.1 $ 58.60 $ 80.9% California Public Employees Retirement System Funded Status

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In addition, the City Council adopted a new fiscal policy on June 28, 2022 to allocate 1/3 of additional revenue earned from investments that is over the annual (fiscal year) baseline of $6 million to the Section 115 Pension Trust. b. Retiree Medical Plans
The City provides post-retirement health insurance benefits in accordance with the Memoranda Agreements between the City and the various collective bargaining units (and to unrepresented employees via Council adopted resolutions). These post- retirement benefits are often referred to as Other Post-Employment Benefits (“OPEB”).

The City has individual trusts for each bargaining unit that fund the medical plans as well as the closed plan for Police that provides a cash benefit. In 2012 the City and the Berkeley Police Association agreed to a new Retiree Medical plan that provides health insurance premium payments, rather than the pre-existing cash payments, to retirees.

The original plan is now a “closed” plan meaning that employees who retire after September 2012 will receive benefits from the new plan. However, the original plan must still make benefit payments to existing retirees and continue to be funded until those payment obligations cease.

The City obtains actuarial reports for each of these plans at least every two years and the City is responsible for investing the assets in these plans. The results of that investment activity are provided to the City Council in the regular Investment Report.

In some cases, the City’s actual contribution to each plan on an annual basis is based on the actuarially established “Annual Required Contribution” or as a percent of payroll.

However, some of the plans are funded on a “pay-as-you-go” basis. Funding on a pay- as-you-go basis is sufficient to cover the annual benefit payments made from the plan assets but impacts the ability to achieve the long-term funding targets.

On April 24, 2017, the City actuary presented various options that would reduce the City’s unfunded liabilities tied to post-employee benefits to meet the long-term funding targets.

Recommended for Council’s consideration were fully prefunding annual actuarially determined contributions, investment reallocations to increase returns, and establishing an irrevocable supplemental trust. Council has already acted on some of these recommendations. The City actuary has provided updated recommendations regarding increasing the City’s annual contribution to fully prefund the City’s OPEB liabilities that are described in more detail on page 27 of this report under the section entitled “Options to Address Long Term Retirement and Infrastructure Costs”.

The following retiree medical plans are discussed in detailed below:
 Police Retiree Income Benefit Plan (closed plan)
 Police Retiree Health Premium Assistance Plan
 Fire Employees Retiree Health Plan
 Retiree Health Premium Assistance Plan (Non-safety Members)

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Police Retiree Income Benefit Plan (closed plan)
The City provides a Retiree Income Benefit Plan for prior Police retirees. To be eligible for benefits, Police employees must retire from the City on or after July 1, 1989 and before September 19, 2012, be vested in a CalPERS pension, have ten years of service with the Berkeley Police department, and retire from the City on or after age 50 or with a disability benefit. Benefits commence 10 years after retirement for retirements before July 6, 1997, 5 years after retirement for retirements before July 1, 2007, and 2 years after retirement for retirements on or after July 1, 2007.

Benefits are payable for the retiree’s lifetime and continue for the life of the surviving spouse. For employees retiring before September 19, 2012, the City pays a monthly income benefit equal to the City’s Active 2-party Kaiser premium regardless of marital status. In 2022, the City’s monthly payment per participant for this benefit ranged from $457.35 to $1,829.38, depending on the retirees’ years of service at retirement. The monthly benefit is pro-rated based on years of service.

As of June 30, 2022, the most recent actuarial valuation date, the plan was 7.14% funded. The actuarial accrued liability for benefits in this plan was $64.81 million, and the actuarial value of assets was $4.63 million, resulting in an unfunded accrued liability of $60.18 million. Since the implementation of GASB 67 and 68, the Annual Required Contribution (ARC) is no longer provided. In addition, the Police Retiree Income Benefit Plan is a closed plan and therefore no “Actuarially Determined Contribution” is provided due to no new members and no payroll information.

Police Retiree Health Premium Assistance Plan
Effective September 19, 2012, the City replaced the “Berkeley Police Retirement Income Benefit Plan” with the “Retiree Health Premium Assistance Coverage Plan” for any police employees hired on or after that date, as well as any current employees who retire on or after such date. Under the newly established retiree health premium assistance plan, benefits will be paid by the City directly to the provider who is providing retiree health coverage to the retiree or his or her surviving spouse. The maximum amount will be equal in value to the City sponsored health plan.

To be eligible for benefits, Police employees must retire from the City on or after September 19, 2012, be vested in a CalPERS pension, have ten years of service with the Berkeley Police department, and retire from the City on or after age 50. Benefits commence immediately upon retirement, but may also be deferred for a period during which the member is covered under another health insurance plan. Benefits are payable for the retiree’s lifetime.

In 2022 the City paid for employees retiring on or after September 19, 2012, a maximum of $823.85/month toward the cost of single-party coverage and up to $1,647.69/month toward the cost of two-party coverage for retirees under age 65 enrolled in the City’s Retiree Health Plan.

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For retirees over age 65 the City’s share of single/two-party coverage is a maximum of $436.14/$872.28 per month and retirees must pay the difference of the actual premium cost. The City’s share will increase by either the amount Kaiser increases the retiree medical premium for that year or 6%, whichever is less. The monthly benefit is pro-rated based on years of service. The City pays this benefit plan on a pay-as-you-go basis.

As of July 1, 2021, the most recent actuarial valuation date, the Actuarially Determined Contribution (ADC) was $4.64 million and the plan was 6.93% funded. The actuarial accrued liability for benefits was $37.25 million, and the actuarial value of assets was $2.58 million, resulting in an unfunded accrued liability of $34.67 million Fire Employees Retiree Health Plan
The City sponsors a retiree health benefit plan for its Fire employees. To be eligible for benefits, Fire employees must retire from the City on or after July 1, 1997, be vested in a CalPERS pension, and retire from the City on or after age 50. Retirees can select from among any of the health plans offered to active employees. Benefits commence immediately upon retirement, but may also be deferred for a period during which the member is covered under another health insurance plan.

Benefits are payable for the retiree’s lifetime and continue for his or her covered spouse’s/domestic partner’s lifetime. The City contributions toward the medical premium depending on whether the retiree has dependent coverage and date of retirement. The City’s contribution increases by 4.5% per year regardless of the amount of increase in the underlying premium rate. The City’s contribution is prorated based on years of service. In 2019, the City’s monthly premium cost per participant for this benefit was a maximum of $662.85 for single party and $1,322.35 for two-party As of July 1, 2021, the most recent actuarial valuation date, the plan was 38.62% funded. The actuarial accrued liability for benefits was $32.78 million, and the actuarial value of assets was $12.66 million, resulting in an unfunded accrued liability of $20.12 million.

Retiree Health Premium Assistance Plan (Non-Safety Members) Effective June 28, 1998, the City adopted the City of Berkeley Retiree Health Premium Assistance Plan (for Non-Safety Members). Employees who retire from the City are eligible for retiree health benefits beginning on or after age 55 if they terminate employment with the City on or after age 50 with at least 8 years of service. Retirees can select a non-City sponsored health plan or enroll in any of the health plans offered to active employees. A retiree living outside the coverage area of the City’s health plans can select an out-of-area health plan.

Benefits are payable for the retiree’s lifetime and continue for his or her covered spouse’s/domestic partner’s lifetime. The City pays the monthly cost of the monthly premiums up to a Participant’s applicable percentage of the Base Dollar Amount and

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subject to annual 4.5% increases as specified in the Retiree Health Premium Assistance Plan document. In 2022, the City’s monthly premium cost per participant for this benefit was a maximum of $546.40 for single party and $940.10 for two-party. A participant’s applicable percentage is based on years of service with the City. The City funds the plan based on the MOU. Contribution amounts are negotiated and vary by bargaining unit.

As of July 1, 2021, the most recent actuarial valuation date, the plan was 38.62% funded. The actuarial accrued liability for benefits was $61.48 million, and the actuarial value of assets was $31.49 million, resulting in an unfunded accrued liability of $29.99 million.

Safety Members Pension Fund (closed plan)
The City also maintains the Safety Members Pension Fund (SMPF). This plan is a single-employer defined benefit pension plan for fire and police officers that retired before March 1973. In March 1973 all active fire and police officers were transferred from SMPF to CalPERS. Service and disability retirement benefits from the SMPF are based on a percentage of salary at retirement, multiplied by years of service. Benefits are adjusted annually by either:
 Current active salary increases (based on the same rank at retirement) or  The income in the California Consumer Price Index (with a 1% minimum and a 3% cap). SMPF also provides surviving spouse benefits.

The City pays SMPF benefits on a pay-as-you-go basis. In February 1989, the Berkeley Civic Improvement Corporation purchased, on behalf of the City, a Guaranteed Income Contract (GIC) from Mass Mutual. This contract provides annual payments through 2018 and an annual guaranteed 9.68% rate of return (net of expenses).

The City was paying the difference between the total SMPF benefits and the amount received from the Massachusetts Mutual Guaranteed Income Contract (GIC). The City will receive declining amounts from the GIC through FY 2019. At June 30, 2022, the unfunded accrued liability was $1.13 million. There were 6 participants remaining in the plan with the average age at 98.4 years.

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*Since the implementation of GASB 67 and 68 the Annual Required Contribution (ARC) is no longer provided. In additional, it is a closed plan and therefore no “Actuarially Determined Contribution” is provided due to no new members and no payroll information.

Supplemental Retirement Income Plan (SRIP) I (closed plan) On January 1, 1983, Ordinance No. 5450-N.S., which was codified in the Berkeley Municipal Code under Chapter 4.36.101 et seq., established SRIP I. The SRIP I plan consists of two components: 1) a defined contribution money purchase pension plan adopted in accordance with Sections 401(a) and 501(a) of the internal revenue code and 2) an employer paid disability benefit.

The City administrators of the money purchase pension plan are Hartford Life Insurance and Prudential Retirement Services. The plan is a defined contribution plan whereby the City contributes 5.7% of salary up to a salary of $32,400 into a tax-deferred and self- directed investment account and 1% of salary up to a salary of $32,400 into a disability reserve account for each permanent City employee. The total assets of SRIP I available for benefits at June 30, 2022, was $6,193,509 which was comprised of 98 participant accounts. These assets are the property of the individual account holders and not the property of the City. These assets cannot be used to pay disability benefits.

Police Employee
Retiree Income Benefit
Plan (closed)*
6/30/2022 $ 64.81 $ 4.63 $ 60.18 $ - $ 2.15 7.14% 148 Police Employees
Retiree Health
Premium Assistance
Plan (new)
7/1/2021 $ 37.25 $ 2.58 $ 34.67 $ 4.64 $ 0.40 6.93% 199 Fire Employees Retiree
Health Plan
7/1/2021 $ 32.78 $ 12.66 $ 20.12 $ 3.07 $ 0.74 38.62% 226 Retiree Health
Premium Assistance
Plans (Non-Safety
Members) *
7/1/2021 $ 61.48 $ 31.49 $ 29.99 $ 5.07 $ 2.22 51.22% 1669 Safety Members
Pension Fund
6/30/2022 $ 1.55 $ 0.41 $ 1.13 $ - $ 0.50 26.71% 6 $ 197.87 $ 51.77 $ 146.09 $ 12.78 $ 6.01 26.17% 2248 *Actual contribution does not include interest income
Retiree Medical Plan Actuarial Data
(dollars in milllions)
Plan
Measurement
Date
Actuarial
Estimated
Liabilities Plan Assets
Net Pension
Liability
Actuarially
Determined
Contribution
(ADC)
Actual
Contribution * % Funded
Total
Plan
Members

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The disability benefit is for employees hired after January 1, 1983 but prior to July 22, 1988, who became disabled and are entitled to receive a disability income benefit equal to 60% of their highest compensation, reduced by any disability payments they receive from Social Security, State Disability Insurance, or Worker’s Compensation. Employees hired after July 21, 1988, are not eligible for benefits under this plan which was closed to new enrollees.

Benefits are payable for the disabled participant’s lifetime or until recovery from disability. The third-party administrator is Cigna. Currently, the City pays the cost of the monthly disability benefits on a pay-as-you-go basis. As of July 1, 2022, there were a total of 54 closed group participants, 6 active employees and 48 disabled participants receiving benefits. The unfunded liability for SRIP I at July 1, 2022, the date of the last actuarial study, was $10,018,000.

Workers’ Compensation Program
The City of Berkeley began its self-insured workers' compensation program on March 1, 1975. The City’s self-insured retention (SIR) has varied between $100,000 and $1,000,000 prior to 2004/05 and is currently unlimited. Every two years, the City has an actuarial review conducted to determine the outstanding liabilities and determine the rates to use for budgeting and payroll purposes to fund the program annually.

The recent actuarial study by Bickmore Actuarial showed the City’s estimated outstanding liabilities, as of June 30, 2023, at an 80% confidence level to be at $46,316,000 for the workers’ compensation program. The City’s Workers’ Compensation Fund ended FY 2022 with a fund balance of $51,696,189, meaning that the City is able to fund its estimated liabilities in its Workers’ Compensation Program.

2. Current Costs for Active Employees
As of July 1, 2022, the City budgeted for 1,791.84 full-time equivalents (FTE). At any given time, the number of employees on the payroll is generally less than the budgeted number of FTE due to retirements and employment separations for other reasons. For purposes of this report, the analysis of the projected payroll costs for the next 10 years is based on the number of authorized budgeted FTE. That number was then projected based on the negotiated cost of living adjustments (COLA) established in collective bargaining agreements. Other increases were also assumed for medical costs, dental costs, cash in lieu, shoes and tools allowance, commuter checks, and other benefits.

Based on these assumptions, total payroll costs for all funds would grow from $342.4 million in FY 2024 to $486.9 million in FY 2034. For modeling purposes, the projected cost assumes no (0%) COLA, which means that the estimated increase of $144.5 million is due to the rise in the costs of benefits only.

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A couple of significant factors driving the increase in benefit costs include:
 Health care premiums for active employees (meaning exclusive of retiree medical contributions). The cost of premiums for medical alone is estimated to grow from $30.8 million in FY 2024 to almost $95.8 million in FY 2034 assuming annual increases of 12 percent as has been historically budgeted in the past.  Employer Paid Portion of PERS Costs is expected to rise from approximately $78 million in FY 2024 to $130 million in FY 2034. This does not take include any contributions made by employees towards overall City CalPERS costs that will be paid to PERS annually as shown in a previous chart.

3. Summary of all current City Obligations (GO bonds)
The City’s debt includes General Obligation Bonds and Revenue Bonds. Attachment 2 includes the detailed debt service payment schedules for each of these debt issuances.

The City currently has five outstanding general obligation (GO) bond authorizations (each with multiple series of bonds) related to public safety, libraries, senior centers, animal shelter, street and integrated watershed improvements, infrastructure and facilities improvement, and affordable housing. The oldest of the authorizations date back to 1992. The City has an aggregate bond tax rate for FY 2023 of 0.0623 (which represents $62.30 for each $100,000 in assessed value (“A.V”). This rate has dropped from a historical peak of approximately $95 (per $100,000 in A.V) in the tax year 1999- 2000. Based on projected annual increases in A.V and decreasing aggregate annual debt service over time, the tax rate will drop with the final tax collected in FY 2051 based on the current outstanding debt (Measure O is the latest bond authorization).

Zero COLA
FY 2023
Adopted
FY 2024
Adopted FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 Total Payroll 205.7 $ 208.1 $ 208.1 $ 208.1 $ 208.1 $ 208.1 $ 208.1 $ 208.1 $ 208.1 $ 208.1 $ 208.1 $ 208.1 $ Total Benefits 128.5 $ 134.3 $ 154.9 $ 160.4 $ 169.4 $ 178.1 $ 192.0 $ 222.0 $ 232.7 $ 243.6 $ 267.1 $ 278.8 $ Fringe Rate 62% 65% 74% 77% 81% 86% 92% 107% 112% 117% 128% 134% Total
Personnel
Costs
334.3 $ 342.4 $ 363.1 $ 368.5 $ 377.5 $ 386.3 $ 400.1 $ 430.1 $ 440.8 $ 451.7 $ 475.2 $ 486.9 $ Citywide Total Personnel Costs and Fringe Rate Over Time with Zero COLAS

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It has been the City’s debt policy to issue each series of bonds with level amortization and terms of either 25 or 30 years. Many of the series have been refinanced for lower interest rates over time. Given the fixed term for each bond series, the aggregate annual debt service for all outstanding bonds decreases over time as each bond reaches its final maturity.

4. Summary of All Capital Assets and Infrastructure
The City has an extensive portfolio of capital assets and infrastructure, of which some of the assets are highlighted below and include the following:
 95 public buildings
 254 miles of public sanitary sewer mains and 130 miles of public sewer laterals  54 parks, 2 pools, 3 camps, and
 42 different facilities served by the City’s IT systems.

Maintaining these assets is a costly and time-consuming enterprise that requires significant resources and constant attention. Additionally, Berkeley is an aging city and thus its infrastructure faces challenges that other younger cities do not. The City’s unfunded infrastructure needs have increased and are anticipated to rise to $2.52 billion from FY 2024 to FY 2028. This dollar amount reflects staff’s best estimate of both the deferred maintenance in the City’s public infrastructure and the unfunded need to deliver public infrastructure that achieves a service level consistent with City Council’s direction, typically set through Council’s adoption of a comprehensive plan related to that category of public infrastructure.

Final
Maturity
Measure FF 2008 26,000,000$ 26,000,000$ -$ 17,925,000$ 2040 0.0059% 0.0058% 2015 General
Obligation Refunding
Bonds ( Refunding
Measure G, S, I
Consolidated)
2015 88,700,000 88,700,000 0 20,950,000 2038 0.0135% 0.0130% Measure M 2015 30,000,000 30,000,000 0 26,345,000 2047 0.0077% 0.0075% Measure T1 2016 100,000,000 80,000,000 20,000,000 75,480,000 2052 0.0170% 0.0160% Measure O 2018 135,000,000 78,000,000 57,000,000 76,440,000 2053 0.0088% 0.0200% Total 379,700,000$ 302,700,000$ 77,000,000$ 217,140,000$ 0.0529% 0.0623% FY 2022
Bond Tax
FY 2023
Bond Tax Bond Authorization Authorization
Year
Authorization
Amount
Bond issued
Amount
Unissued
Amount
Outstanding Debt Services
as of 6-30-2022

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Several recent items adopted by voters have provided a much-needed increase in the resources available for the City to address its infrastructure needs:
 Measure T1: In November 2016, Berkeley voters passed Measure T1,2 authorizing the City to sell $100 million of General Obligation Bonds to repair, renovate, replace, or reconstruct the City’s aging infrastructure and facilities, including sidewalks, storm drains, parks, streets, senior and recreation centers, and other important City facilities and buildings. Council approved 45 projects to be completed in Phase 1. The majority of these projects are now complete81, with the balance to be completed in 2023. On December 15, 2020, Council approved 36 additional projects to be completed in Phase 2, between 2021 and 2026.
 Measure F: The November 2014 voter approval of Measure F (a City-wide special park parcel tax) provided an additional $750,000 per year for major maintenance projects, raising annual funding for parks capital and major maintenance projects from the prior $250,000 to $1 million.  Clean Storm Water Fund: The Clean Storm Water fund provides the funding for the maintenance and improvement of the City’s storm water drainage system to reduce the pollutants in storm water from entering local creeks and the Bay. Revenue to this fund is from the collection of fees charged to every owner of real property in the City and is collected through property taxes.

Prior to FY 2019, Clean Storm Water Fund revenues were fee-supported and are capped at 1996 levels by Proposition 218, set at flat $34 fee per year. The revenues generated by this fee were no longer sufficient to pay for the Clean Storm Water program. The City conducted a Proposition 218 rate increase process that was approved by the voters and the City Council. The new fees generated by the 2018 Clean Storm Water Fee are shown as separate line item on property tax bills from the 1991 Clean Storm Water Fees. The fee is subject to an annual adjustment based on the Consumer Price Index.  Streetlight Assessment District Fund: The Streetlight Assessment District Fund provides for maintenance of the City’s 7,860 streetlights along the public streets, parking lots, pathways, recreation facilities, and marina. Also, it is to be used for installation or construction of public lighting facilities.

Revenue to this fund is collected through annual property taxes and is capped by Proposition 218, allowing for no rate increase to this assessment without voter approval. Property owners and the City Council approved a new 2018 Streetlight Assessment District that is shown as a separate line on the property tax bills. The Proposition 218 revenue increase provides additional revenue to support the program and maintain service levels. 2 See https://www.cityofberkeley.info/MeasureT1/.

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The approved ballot measure allows for an inflation adjustment based on the Consumer Price Index, but no more than 3% per year. The inflation index can be applied to the sum of the 1982 and 2018 assessments. Starting in FY 2022, Public Works will focus on an annual capital improvement projects for the street light program. Fund balance is mostly due to compounding salary savings from freezing and vacant positions. As the work on the streetlight deferred maintenance and capital plan ramps up, frozen positions will be reassessed.

Additionally, as part of the FY23-24 Budget adoption, the Council authorized a significant new infusion of investment in capital infrastructure. For Public Works this included an additional $5M in FY23 and $9.1M in FY24 for additional paving funds, as well as an additional $750,000 for deferred building maintenance and $750,000 for ADA Transitional Plan funding for the same period. An additional $1.5M in FY23 and $2M in FY24 were allocated to Parks, Recreation & Waterfront capital improvements.

Despite these measures, City facilities and infrastructure needs continue to exceed available funds. The current annual allocation to PRW capital of $3.815M – despite being the highest level of annual commitment in recent history – is still not enough to keep pace with the unfunded needs. The cost for existing and new planned infrastructure in parks, pools, camps, and the Waterfront exceeds $380 million.

The unfunded needs in for Public Works in terms of City buildings, sidewalks, streets, streetlights, sewer, storm water/ green infrastructure, traffic signals and parking infrastructures, undergrounding, Veterans and Old City Hall buildings, transfer station, bike and pedestrian plan projects, and transit projects, exceed $1.6 billion.

With the recent funding increases, the amount of recurring funding to address these needs is now an estimated $42.4 million as of FY24.

It is anticipated that infrastructure costs will continue to increase through typical “wear and tear” that impacts City infrastructure in the coming years, plus the pressures of long-deferred maintenance. As needed improvements continue to be deferred, operating and maintenance costs rise and rehabilitation and replacement costs increase substantially.

UNFUNDED NEEDS
The following describe the various unfunded needs by program category:
 City Buildings: Public Works is responsible for the maintenance of 56 of the City’s 95 facilities. The other 39 are maintained by PRW. The total replacement value of the Public Works-maintained buildings in this inventory exceeds $540 million. Library facilities and facilities leased to other entities are not included in this analysis. A third-party expert has provided facility condition assessments for many of these buildings.

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These assessments identify building components replacements (plumbing, electrical, HVAC, wall/door finishes, etc.) that either should have already been completed or schedules them before the useful life of the component is over.

Based on these assessments, the City’s existing facility needs are estimated at approximately $314,500,000, while the current budget allocation for building component replacement over the 5-year planning period is $13 million. An alternative analysis provided by the City’s Strategic Asset Management Plan identified an annual funding shortfall of $5.2 million to $11.7 million. Some of this annual funding gap is covered by one-time allocations from the General Fund or T1 funds.
 Parks, Recreation & Waterfront: The Parks, Recreation & Waterfront Department (PRW) operates, maintains and manages 54 parks, 4 community centers, 2 clubhouses, 2 pools, 3 resident camps, 15 athletic fields, 49 sports courts, 63 play areas, 36 picnic areas, 45,000 trees, 11.5 miles of landscaped street medians and triangles, 263 irrigation systems, and 30 restrooms and buildings. In addition, PRW operates and maintains the Berkeley Waterfront and its related facilities, including the docks, pilings, channel, streets, pathways, parking lots, buildings, trails, Shorebird Nature Center, Adventure Playground, and 1,000 boat slips. The recurring funding available for capital and major maintenance is $3.185 million, as shown in the table below.

Funding Source Annual Capital & Major
Maintenance Funding
Parks Tax Fund $1,065,000
Capital Improvement Fund $2,400,000
Marina Fund $350,000
Camps Fund3 $0
Total Funding Available $3,815,000
Unfunded needs for existing PRW infrastructure are summarized in the table below.

Unfunded PRW Capital Needs – Existing infrastructure
Improvements Cost Estimate
Resident Camps $8,460,855
Waterfront $160,995,276
Pools $7,581,600
Park Buildings/Facilities $4,749,030
Parks (General) $15,163,200
Parks (Specific) $39,279,006
Park Restrooms $2,316,600
3 Due to the loss and rebuilding of Berkeley Tuolumne Camp, the Camps Fund does not have sufficient funds at this time to cover any annual investment in capital or major maintenance.

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Total Need $238,545,567
In addition, there is $145M in unfunded needs for planned PRW improvements that are not currently existing infrastructure, shown in the table below.

Unfunded PRW Capital Needs – New Planned Infrastructure Improvements Cost Estimate San Pablo Park: New Community Center and Pool $39,000,000 King Park: New 25M Competitive Pool / Locker Room $16,000,000 Tom Bates Sports Complex: New Youth Soccer Field,
Pickleball Courts and Restroom $1,980,000
New Restrooms in Parks over 1 Acre: James Kenney,
Aquatic, Civic Center, King, and John Hinkel Parks $2,630,000 James Kenney Park: Skate Spot $369,000
Waterfront: New Bike Park adjacent to University Ave. $1,650,000 Waterfront: Pier/Ferry Preferred Concept with landside
and waterside improvements $83,500,000
Total Need $145,129,000
These new infrastructure improvements would add new community amenities, and are included because conceptual planning processes have been completed or Council has provided direction to implement. If this new planned infrastructure is built, there will be approximately $44M in savings realized in existing infrastructure cost estimates, as they would replace some existing infrastructure.

The estimates do not reflect funding arrangements. For example, for the pier/ferry, the City and the Water Emergency Transit Authority (WETA) would share responsibility for identifying funding for the preferred concept developed during a year-long community process.4
The majority of PRW unfunded needs are at the Waterfront, where many of the docks, pilings, buildings, parking lots and streets have reached the end of their useful life and are starting to fail. As documented in multiple reports over the last several years5, there is a diminishing ability to pay for the 4 See https://berkeleyca.gov/sites/default/files/documents/2021-12- 07%20Item%2002%20Large%20Scale%20Ferry%20Feasibility%20Study%E2%80%93%20A%20Preferr ed%20Concept_0.pdf
5 See March 16, 2022 BMASP Community Meeting #2 presentation (https://www.cityofberkeley.info/uploadedFiles/Parks_Rec_Waterfront/Level_3__-General/2022- 03-16-FINAL-Mtg_deck-CW2-Deck.pdf); April 29, 2021 PRW Budget Presentation to the Council Budget & Finance Policy Committee,
(https://www.cityofberkeley.info/uploadedFiles/Clerk/PRW%20FY22%20Budget%20Presentation %20Rev2.pdf); February 16, 2021 Council report and presentation for the BMASP and Pier/Ferry Worksession (https://www.cityofberkeley.info/Clerk/City_Council/2021/02_Feb/Documents/2021-

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pressing capital needs in the Waterfront. From the Marina Fund, $350,000 per year is budgeted for capital improvements. This amount is insufficient to address Waterfront needs. The Marina Fund is projected to need $1.4M in the next budget cycle just to maintain baseline Waterfront operations and does not currently have the ability to support capital projects. Capital needs at the Waterfront are otherwise dependent on General Fund, external funding and grants. Over $40M has been invested into the Waterfront by the City over the last fifteen years6, but it is only a small percentage of the investment needed. The City is working on a Waterfront Specific Plan7, which will explore new revenue generating opportunities to help address the structural deficit, exhausted reserves, and declining operating revenue that makes it impossible for the Marina Fund to reinvest in its facilities.  Streets & Roads: There are approximately 215 centerline miles of improved streets in Berkeley and their estimated replacement value is $816,753,950. Every two to three years, portions of Berkeley’s streets are inspected using the Metropolitan Transportation Commission’s Pavement Management System (PMS) to identify repair needs and assign a pavement condition index (PCI). The City uses the PMS and PCI to track and prioritize pavement rehabilitation and maintenance needs on individual asphalt streets and the overall condition of the City’s street pavement network. The current overall average PCI rating is 56 (out of 100). This puts Berkeley’s streets in the ‘at-risk’ category. The recently updated Street Maintenance and Rehabilitation Policy (2022) identified a goal of 02-16_WS_Item_02_Berkeley_Marina_Area_Specific_Plan_pdf.aspx); November 10, 2020 Marina Fund presentation to Council Budget & Finance Policy Committee (
https://www.cityofberkeley.info/uploadedFiles/Clerk/2020-11-12 Item 2c Budget.pdf); December 13, 2018 Off- Agenda Memo (https://www.cityofberkeley.info/uploadedFiles/Clerk/Level_3_- _General/Marina%20Fund%20Update%20121318.pdf); November 15, 2018 Worksession Report
(
https://www.cityofberkeley.info/Clerk/City_Council/2018/11_Nov/Documents/2018-11- 15_WS_Item_02_Parks_Recreation_Waterfront_pdf.aspx); July 1, 2018 Off-Agenda Report (https://www.cityofberkeley.info/uploadedFiles/Clerk/Level_3_- _General/CM%20Update%20-%20Waterfront%20-
%20Hs%20%20Lordships%20(w%20attachments).pdf); May 8, 2018 Worksession Report (https://www.cityofberkeley.info/Clerk/City_Council/2018/05_May/Documents/2018-05- 08_WS_Item_03_Parks,_Recreation,_Waterfront.aspx); May 8, 2018 Proposed Budget Update (https://www.cityofberkeley.info/Clerk/City_Council/2018/05_May/Documents/2018-05- 08_WS_Item_01_FY_2019_Proposed_Budget_Update.aspx); April 12, 2018 Off-Agenda Report (
https://www.cityofberkeley.info/uploadedFiles/Clerk/Level_3_- _General/Marina%20Fund%20Update%20041218.pdf); and November 7, 2017 Worksession Report
(
https://www.cityofberkeley.info/Clerk/City_Council/2017/11_Nov/Documents/2017-11- 07_WS_Item_02_Parks,_Recreation_and_Waterfront_CIP.aspx). 6See https://berkeleyca.gov/sites/default/files/2022-04/Waterfront%20CIP%20Projects%20021622.pdf and https://berkeleyca.gov/sites/default/files/documents/2022-12- 13%20Special%20Item%2002%20Grant%20Contracts%20with%20the%20State%20Coastal.pdf 7 See https://berkeleyca.gov/your-government/our-work/capital-projects/berkeley-marina-area-specific- plan-bmasp-project

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good condition for the City’s streets, which is a PCI between 70 to 79.

To keep the streets from deteriorating further, City Council has adopted a policy allocated $8 million annually in General Fund money. That $8 million contribution, along with existing transportation funds totaling $7.3 million, would ensure the pavement condition is at least maintained and does not decline. If that committed is continued, the City would have to spend an additional $247,500,000 to achieve a PCI of 75 within 15 years. This funding only assumes treatment of pavement surface, markings, and curb cuts, not costs related to drainage improvements, green infrastructure, and implementation of the City’s bicycle, pedestrian, and Vision Zero plans.
 Sidewalks & Pathways: The City has 400 miles of sidewalk. Public Works manages a sidewalk repair program to keep the City’s sidewalks safe and provide for safe pedestrian passage, including makesafe repairs, annual proactive repair program, and the City’s 50/50 replacement cost-share program in which the City shares the costs for broken sidewalks with property owners.

Public Works responds to all reported sidewalk hazards, assesses each situation and installs an asphalt make-safe or grinds the sidewalk hazard if applicable, and on occasion perform limited sidewalk removal and replacement if a sidewalk hazard cannot be made reasonably safe.

These sidewalks have an estimated replacement value of $400,000,000.

Deferred maintenance in this asset is estimated at $60,000,000, primarily derived from the recently completed ADA Transition Evaluation that proactively assessed all of the City’s sidewalks and identified repair locations. However, the City has only $1 million available in annual funding towards sidewalks maintenance and repair from baseline allocations from the Capital Improvement Fund and 50/50 Program contributions from residents.  Sewers: The City owns and operates 255 miles of sewer mains and 165 miles of lower laterals. Their estimated replacement value is $820,000,000. The estimated cost of rehabilitating all of the City's sewer pipes per the City's adopted plans is $183,500,000. This is one of the asset categories with a dedicated fee that has been adjusted every five years. It is adequately funding a maintenance and capital renewal program, resulting in the deferred maintenance declining over time.

The City’s Strategic Asset Management Plan also found proper maintenance funding for this asset. In 2014, the City (along with EBMUD and all agencies conveying flows to EBMUD) concluded negotiations with the Environmental Protection Agency and the Department of Justice for violation of the Clean Water Act and agreed to a stipulated settlement known as the final Consent Decree. To comply with the Consent Decree, the City is required to rehabilitate an average of 4.2 miles of sewer pipeline annually based on a three-year rolling average. Effectively, this mandated significant additional maintenance activities and capital improvements, and resulted in increased costs of managing the City’s existing sewer system.

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 Storm Water & Green Infrastructure: The City’s engineered storm drains include approximately 78 miles of underground pipes, manholes, catch basins and cross-drains, and 30+ green infrastructure locations. Their estimated replacement value is $440,253,101. The unfunded infrastructure need is estimated at $362,000,000. This estimate is derived from the remaining improvements of the adopted 2012 Watershed Management Plan, and staff estimates including staff estimates for green infrastructure.

Much of the stormwater infrastructure is over 80 years old and needs substantial rehabilitation, including rehabilitation of pipeline reaches; replacement of deteriorated drain inlets and piping; major cleaning of the primary storm collectors in the lower watersheds; and replacement of street cross drains. The City’s Strategic Asset Management Plan identified that the maintenance funding for this asset was likely too low, given the life of these assets, expanding green infrastructure requirements, and new threats from more intense, climate-fueled storms. Public Works seeks to initiate the Stormwater Comprehensive Plan in 2023. This plan will update the Watershed Management Plan and incorporate the Green Infrastructure Plan (2019), along with rehabilitation or replacement of the aging infrastructure.

Adoption of the Plan would then enable the City to consider whether to update its stormwater fee to better address existing and future needs.  Traffic Signals & Parking Infrastructure: The City currently has 142 traffic signals, 20 rectangular rapid flashing beacons, 2,100 parking meters and 240 pay stations. Staff estimated $23,500,000 in unfunded needs related to the replacement and renewal of these infrastructure components.  Undergrounding Project: The City has approximately 15 miles (as identified in the Phase 3 Report for undergrounding) of key evacuation routes where undergrounding utility wire needs to take place in Berkeley. The estimated cost is approximately $7,000,000 per mile with a 4% annual escalator factor applied. The estimated cost of these improvements is currently $109,200,000.
 Vets & Old City Hall: Both Old City Hall and Veteran’s Buildings are in need or renovation and were built prior to seismic standards and must be retrofitted. Staff estimated a cost of $110,000,000 to complete these renovations and retrofits.
 Transfer Station: The Transfer Station, which was constructed in 1982, requires a redesign and replacement estimated at $76 million. The Solid Waste & Recycling Transfer Station Replacement Project Feasibility Study was completed in November 2019 after a robust public input process.

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Currently, the Transfer Station has two below-grade refuse and organic materials load out tunnels that top-load trailers who transfer the material off the site for recycling and/or disposal. The Transfer Station and its ancillary structures are showing considerable wear and tear after 38 years of operation, and the current facilities are not configured for efficient diversion or customer-friendly recycling of incoming materials.
 Bike & Pedestrian Projects: City Council has approved the Bicycle Plan (2017) and Pedestrian Plan (2021). Staff estimate the unfunded need to implement these plans and the projects derived from them to be at least $129 million. These projects also are important to the Vision Zero Action Plan (2020), which seeks to eliminate severe injuries and fatalities on our City Streets, a high proportion of which are bicyclists and pedestrians.  Transit Projects: The City is committed to encouraging transit use. An AC- Transit Major Corridor Study (2016) recommended a series of improvements throughout the City. Those improvements are currently estimated at $53 million, including funds sufficient to install new and/or replace bus pads. The City is currently developing a Transit First Implementation Plan to help guide and focus ongoing transit operations improvements on City streets.  Fire Projects: In consultation with Public Works Staff, the Fire Department has conducted a long-term assessment of its facilities that takes in to account the age of the facility, modern workplace exposure protection, and modifications to staffing and equipment driven by development, congestion and changes to population. That assessment shows $288M in unfunded facility needs.

Information Technology Infrastructure
Technology infrastructure presents unique challenges with respect to forecasting long term requirements because technology evolves quickly compared to other types of infrastructure. The City’s needs in terms of network bandwidth, data storage, and wireless devices may be dramatically different in the future than they are today. Additionally, unlike traditional infrastructure replacement projects which can be done incrementally, some technology tools require a large upfront investment to implement but cost significantly less to upgrade as the technology becomes more common. City staff currently use and maintain a vast technology infrastructure to provide services to the community each day.

Current information technology infrastructure will expand as the City uses more technology tools to gain efficiencies.

The Department of Information Technology provides the City’s computing infrastructure, supporting desktops, laptops, mobile devices, back-end server infrastructure, network accessibility and digital data security. Examples of such infrastructure include:
 Computer asset inventory comprising approximately 1,412 desktops, 796 laptops, 240 tablets, and 118 Public Safety Mobile Data Computers (MDCs), which continues to increase due to remote work expansion.

Unfunded Liability Obligations and Unfunded Infrastructure Needs ACTION CALENDAR April 11, 2023

 Replacement of aging, end-of-life enterprise systems such as the FUND$ financial system.
 A major update of the City’s phone system (Voice over IP or VOIP) via unfunded upgrades to address eFax, Automation of line move/add/change, softphones, VOIP security, etc.
 Increased capacity for City’s digital data storage needs and cybersecurity initiatives.

Many of the above prior projects were unfunded and were the result of a need to respond to an immediate or impending threat (such as a breach, or aging, unsupported, end-of- life equipment), as the timing of the needs often outpaced the ability to anticipate and plan for long term sustainability due to a number of factors, including loss of institutional knowledge through personnel departures and retirements or lack of “pipeline” funding (i.e., what would be needed for the next n-years to replace an end-of-life system).

For FY 2023 through FY 2025, which is about the limit of future foresight as it applies to IT systems, at least six critical projects need to be addressed through unfunded liabilities to preserve the City’s digital assets:

1. Continued implementation of Cybersecurity Resiliency Plan:

In late 2018, the City began development of its Cyber Resilience Plan (CRP) to help ensure the City is sufficiently and prudently equipped to handle cyberattacks and to help the City mitigate the effects of a successful cyberattack, should one occur. Information Technology continues to implement the solutions identified in the CRP.

2. Customer Relationship Management (CRM):

In FY 2019, the City upgraded its existing CRM software application, used by 311, Public Works and Parks, Recreation and Waterfront (PRW). Beginning November 2021, Public Works and PRW implemented a separate work order system called NextGen, which is not well integrated with the existing Lagan system still in use by 311 (the Lagan system is still being used by 311 to field over 100,000 requests for service per year). A new 311 CRM system replacement and implementation was targeted for FY2021 but delayed due to COVID and a related proposed budget reduction. 311 paused the release of the RFP until the Public Works NextGen work order system was implemented and the Zero Waste billing system vendor was selected.

An RFP for a new CRM system will be published in late FY 2023 with an estimated implementation completion date of FY 2025. During this period, 311 will remain on Verint-Lagan ($33,000 per year) until the new CRM is fully implemented.

The new CRM will give 311 the ability to capture, route, and manage all forms of requests through multiple communication channels with integration to the Public Works and PRW NexGen work order system, and Zero Waste billing system.

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A new CRM cloud-based system will allow community members to make service requests online via a City of Berkeley CRM portal on the City’s website.

Community members, City Staff and Council will be able to view status of service requests and view integrated knowledge documents online through the 311 CRM portal.

3. Geographical Information Systems (GIS)– Master Address Database (MAD) to address the Non-Compliance with NENA GRID and e911 Technology:

As the City deploys new systems such as work order, zero waste billing, digital permitting CRM and others, it is critical to have a modern, centralized address/parcel database that can easily feed accurate and consistent GIS information. Having one source of truth for address data will allow for ease of maintenance, timely updates, and consistency. This will bring greater efficiencies for city departments through various workflows including permitting, building inspections, work orders, billing, assessments and more. It will result in service that is more effective to our community by providing real time and accurate address data across departments. This project will be in conjunction the Property Tax Replacement Project, which is scheduled to begin in FY 2024.

4. IT Department Move to 1947:

The Department of Information Technology was in the planning stages to relocate to 1947 Center Street to accommodate all of its staff, as well as several City Manager’s Office (CMO) personnel, totaling over 55 total employees. The move to 1947 Center Street was delayed in FY20 due to COVID related proposed budget deductions, and again delayed in FY 2022 due to unexpected asbestos abatement construction delays. The move is now targeted to begin before the end of FY 2023 and complete in FY 2024.

5. Improvement to City-wide Facilities Wi-Fi:

Currently all City of Berkeley facilities are not setup to provide seamless Wi-Fi connectivity. Furthermore, those locations providing current Wi-Fi are serviced with aging, deprecated and/or non-enterprise quality equipment which has proven to be troublesome and failure-prone. In anticipation of a more disbursed work culture, it is imperative that the City provide enterprise quality, secure and high- speed Wi-Fi access at all its facilities serving both employees and the public, including outdoor areas of the Marina and other PRW facilities. The availability of such service will enhance productivity and safety for all, and is consistent with needs of all City departments as well as an outside audit finding. IT will engage a managed service provider to install, upgrade and/or replace all Wi-Fi access points and accompanying technology at all City managed facilities and areas. This managed service will alleviate the heavy service demands placed on staff to provide field support for maintaining equipment, as the managed service will provide full, turnkey support of all equipment with designated response windows.

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6. Implementation of City-wide collaboration tools (MS TEAMS and SharePoint):

The City lacks an enterprise solution for collaboration and productivity. Microsoft Teams and SharePoint are licensed products that the City subscribes to and provides for unified messaging for all organizations. It is a platform solution and workspace for real-time collaboration and communication, meetings, file and app sharing. Implementation of MS TEAMS and SharePoint will allow City to collaborate on a broader scale, and increase security and accessibility of electronic media and documents. It also will allow the City to better manage any file retention policies. Implementation of MS TEAMS and SharePoint will require the services of both internal staff as well as a qualified professional consultant and implementer.

Options to Address Long Term Retirement and Infrastructure Costs The City continues to consider how to prioritize expenditures to address some of its long- term obligations in order to maintain a healthy future. As mentioned earlier in this report, Council has already taken the following actions to address the City’s unfunded liabilities.  On June 26, 2018, Council authorized the City Manager to establish an IRS Section 115 Pension Trust Fund (Trust) to be used to help pre-fund pension obligations. On May 14, 2019, Council authorized the City Manager to execute a contract with Keenan Financial Services to establish, maintain, and invest the pension Section 115 Trust.
 The Section 115 Trust currently has a balance of $14,762,850.42 and is being funded annually through transfers from the General Fund and Capital Improvement Fund and the savings from prepayment of the annual PERS payment, and, beginning in FY 2023, through any additional earned investment revenue over the baseline projection.

At the March 9, 2023 Budget & Finance Policy Committee Meeting, the Committee received a presentation from the City’s actuary, Foster & Foster, regarding the status of the City’s pension plans and retiree health plans (Other-Post Employment Benefits) (Attachment 5). The presentation included specific funding recommendations including:
 Fully pre-fund the City’s OPEB liabilities by increasing the annual contribution to the City’s four retiree health plans by $8.8 million, for a total of $15 million, over the next 20 years.
 Continue the City’s current target of allocating $5.5 million annually to the Section 115 Pension Trust to reach a recommended Trust balance of $25-$50 million.

Berkeley voters have approved several bond measures to improve the City’s infrastructure, including Measure F for parks, Measure M for streets, and most recently Measure T1, which authorized the City to sell $100 million of General Obligation Bonds to repair, renovate, replace or reconstruct the City’s aging infrastructure and facilities. The Adopted Biennial Budget includes funding of $18.3 million for street rehabilitation in FY 2023, which includes $7.1 million from the CIP Fund ($2.1 million baseline and $5.0 million additional

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funding), State gas tax, Measure BB and other sources. In FY 2024, the General Fund (through the CIP Fund) contributes nearly $11.0 million and funding from all sources total $19.4 million. In addition to funding for streets, the Adopted Budget allocates funding for other critical public safety projects such as the Jail Control Panel Replacement project, the Waterfront piling project, the Telegraph/Channing Garage Elevator Repairs, and various traffic calming and improvement projects. In total, the General Fund contributes approximately $14.0 million for capital projects in both fiscal years 2023 and 2024, including streets, funded by a portion of projected excess property transfer tax revenues.

A separate presentation and discussion on Unfunded Infrastructure Needs will be held either at the April 25, 2023 City Council Meeting or a later date to be determined.

General Fund Revenue Projections
As noted in the introduction, when this report was originally presented in 2013, members of the City Council requested that staff include long-term revenue projections in the next biennial report, in addition to the expenditure projections identified in Council Resolution No. 65,748-N.S. The intent was to present a complete and informative forecast, and provide a better long-term perspective on Berkeley’s ability to achieve financial stability through future economic cycles. The projections presented in this report are limited to the General Fund as those funds are the most discretionary in terms of allocation, and also highly subject to economic conditions. The General Fund typically comprises about one-half of the City’s total budget; the remainder of the budget consists of various Special Funds which are restricted in purpose (e.g. Zero Waste, Permit Services Center, Sewer, Public Health, and Mental Health).

The chart below provides a summary of total General Fund Revenues projected through FY 2027. The revenue projections have been updated to reflect results from the first six months of Fiscal Year 2023. Fifty percent (50%) of the City’s FY 2023 Projected General Fund revenue is derived from Secured Property, Sales Tax, Business License Taxes, and Property Transfer Taxes. Each major contributing revenue stream is described in more detail below. Additional detail on General Fund Revenue Projections can be found in Attachment 4.

FY 2023
Adopted
FY 2023
Projected FY 2024 FY 2025 FY 2026 FY 2027
GF Revenues
Baseline 258.7 $ 272.9 $ 274.6 $ 262.2 $ 267.6 $ 272.5 $ General Fund Revenues Projections (dollar in millions)