A high-profile new report showed California still faces massive liabilities extending far into the future. The study, released by the nonpartisan Legislative Analyst’s Office, tallied over $340 billion in debts, deferred payment and other budgetary burdens “that will affect the state’s financial health in the future.”
According to the report, “Addressing California’s Key Liabilities,” there was some good news mixed in with the bad. The LAO was relatively sanguine toward a substantial portion of California’s long-brewing public pensions crisis. The report’s Executive Summary lauded “recent actions taken by the California Public Employees’ Retirement System (CalPERS) board … to address the unfunded liability for state employee pension benefits in about 30 years.”
Given the legal controversy surrounding CalPERS’ role in city bankruptcies, however, the LAO’s praise may not go far. Litigation concerning the bankruptcy of Stockton, for instance, has pulled CalPERS back into potential liability. “Even though the city decided not to try to cut its CalPERS payments,” the Sacramento Bee reported, “Judge Christopher Klein said he could rule that the pension fund could be treated like other creditors.”
That’s significant because a ruling along those lines would affect CalPERS statewide. CalPERS is locked in a closely watched mediation process with the city of San Bernardino, which hopes to avoid millions in back payments to CalPERS as a consequence of declaring bankruptcy.
CalPERS, however, isn’t the only pension system at the center of the LAO report. There’s also CalSTRS, the California State Teachers’ Retirement System. There, the LAO fingers “$200 billion in liabilities” that “merit further legislative attention.”
In his revised May budget, Brown has a plan to address the shortfall. It’s already drawing criticism. He aims to make a down payment on CalSTRS’ $74 billion shortfall — followed by $5 billion in increased funds every year for 30 years, once it’s fully phased in after seven years of stepped-up payments. Notably, $3.7 billion a year will be expected to come from school districts themselves — not a popular policy at the local level.