Borrowing to make the extra payment would not reduce the state’s overall debt, obviously. Brown contends that it would save money in the long run, because the interest paid on the loan would be less than the projected growth of pension debt.
It’s quite similar to the “pension obligation bonds” that local governments have floated, hoping to come out ahead via arbitrage, but they have sometimes backfired, and Brown is betting $6 billion that CalPERS can achieve its 7 percent annual earnings goal despite what the governor describes as “poor investment returns.” Even if this fiscal gimmick works as hoped, the state’s retirement debt will continue to grow.
The state’s regular payments to CalPERS fall way short of what would be needed to keep the debt from growing, much less pay it down. Overall, CalPERS has less than two-thirds of the money it needs to cover all pension commitments.
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