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City, UC Clash Over Payment for Services

Tuesday June 15, 2004

Playing host to UC Berkeley costs the city $10.9 million a year—nearly the same amount as the city’s current budget deficit—according to a recently released city-commissioned fiscal impact analysis. 

Berkeley intends to use the $50,000 report from Economic & Planning Systems, Inc. to strengthen its hand as the city prepares to enter negotiations with the university for mitigations to pay for city fire, police and sewer services. 

A 1990 deal, set to expire next year, requires the university to pay approximately $500,000 a year, mostly for use of the city’s sewer system. 

The fiscal impact report, released Friday, puts the city’s cost of providing the university sewer services at $2.7 million, fire services at 5.7 million and police services at $3 million. In total, the report estimates UC costs the city $13.5 million in unpaid services, while supplying only $2.1 million back in tax revenue and $500,000 in mitigation payments. 

Should UC achieve its 2020 development goals outlined in its Long Range Development Plan, the city would be saddled with an additional $1.6 million in costs, according to the study.  

In a separate analysis, the report found that the city loses out on $10.8 million in tax revenue annually because the university—the city’s largest landholder—is exempt from local taxes and fees that pay for city services. 

Councilmember Kriss Worthington called the report a good beginning, but said it failed to account for all of the city’s expenses. Worthington and Councilmember Dona Spring both said they intend to seek more than $11 million per year from the university. 

UC Berkeley, however, contested the report’s findings and refused to use them as a baseline in future negotiations. The fiscal impact report is “one-sided, and I don’t think it’s accurate,” said Irene Hegarty, the university’s Director of Community Relations.  

Hegarty said the report undervalued UC’s contribution to the city economy and overstated its costs. 

Citing a 2001 UC Berkeley study, Hegarty said the university employed one out of every six Berkeley residents for a total of $228 million in payroll, and spent roughly $70 million with Berkeley-based businesses. UC estimated that its direct payments generate another 6,600 jobs and $170 million for the city’s economy. 

Additionally, Hegarty said, the university provides Berkeley with free technical and policy advice, numerous volunteers, free recreation space, contributions for streetlight and traffic light improvements, and a stable employer that has safeguarded the city economy from harsh economic downturns. 

UC officials also questioned the methodology used in the city’s fiscal impact report. In calculating the cost of fire services, for instance, Assistant Vice Chancellor for Physical and Environmental Planning Thomas Lollini said the report failed to track the source of calls for service. Instead, he said, the report placed a “blanket” cost on UC, based on its proportion of the city population, without taking into account that students were far less likely to request emergency medical assistance which, he said, account for 70 percent of calls to the fire department.  

Long-simmering town-gown differences have flared recently as Berkeley’s budget deficit spiraled to $10.3 million this year, with some city residents and politicians blaming the university for not paying its fair share. Assistant City Manager Arrietta Chakos said the UC fiscal impact report, approved two years ago, was not politically motivated. Chakos added that the city was merely trying to recoup its losses, not seek political cover. 

As for the indirect benefits UC provides, Chakos said they were too difficult to quantify so they were excluded from the report. 

The university will be in the driver’s seat for any negotiations. Although the city believes it can compel UC to pay for more of the cost of transporting its sewage to treatment centers, as a state entity UC Berkeley is exempt from local assessments that would pay for other services. 

A bill authored by Assemblymember Loni Hancock (D-Berkeley) that passed the Assembly last month wouldn’t force UC to offer mitigations, but would prohibit UC from certifying environmental reports for new projects—including its in-progress Long-range Development Plan—until a deal with the city was reached. 

Ultimately the city hopes that the California Legislature will follow the example of other states and offer payments in lieu of taxes to cities that house large public agencies. For example, Mansfield, Connecticut, home to the University of Connecticut, will receive $6 million from that state this year to offset 45 percent of what the city would receive if the university paid taxes. 

“If they didn’t give it to us, we’d go broke,” said Jeff Smith, Mansfield’s director of finance. 

For UC, any settlement would need approval from the University of California Board of Regents. Other UC towns, none of which has sought such extensive compensation, will be monitoring the negotiations. 

“We’ll have our eye on it,” said Santa Barbara County Administrator Mike Brown. He said a recent county survey put the price tag of housing UC Santa Barbara at $4.2 million. 

“We’re worse off than Berkeley,” Brown said. “At least they have a mitigation agreement. We don’t have anything like that.” 

Three years ago the city of Santa Cruz reached an agreement with UC Santa Cruz to pay the city $70,000 a year in return for the university buying a hotel and taking it off the city’s tax rolls. 

The university made its first payment three years ago, but hasn’t paid since, said Santa Cruz Assistant City Manager Martin Bernal. 

“It’s a difficult issue,” Bernal said. “They are a burden, but overall it’s better to have a UC than not have one. “It’s what’s made the city.”