Despite its growing economy and higher tax revenue, California still faces fiscal ruin from unsustainable government pension programs.
In these good times, the state, local governments, public schools and our universities are raising taxes, boosting tuition and cutting services to pay rising employee retirement costs. Between 2003 and 2013, combined annual pension costs have nearly tripled, from $6.43 billion to $17.5 billion.
The State Controller also reports nearly $200 billion in unfunded liabilities for state and local pension obligations. California Common Sense calculates another $150 billion of unfunded liabilities for state and local retiree healthcare obligations. That’s $350 billion in unfunded legacy liabilities that are driving massive cost increases, again:
- CalPERS has told its agencies to be prepared for increases in their contributions for 50% over 5 years.
- CalSTRS has told school districts to prepare for increases of more than 100% over the next few years.
And those warnings are for optimistic scenarios that still assume investments will earn 7.5% annually during the next 30 years.
From a purely financial perspective, retirement promises and their debts are driving California’s fiscal crisis – but politicians are the real problem, unable to say “no” to the powerful government labor union bosses that fund their campaigns and then make expensive demands at the bargaining table.
Without immediate reform, California faces a future of even higher taxes and fewer services. Some local governments already face service delivery insolvency and bankruptcy.
