10/28/2021

In California Pension Casino, Taxpayers Going Bust

California has a state pension problem that defies partisan politics. It’s not about Hillary vs. Donald, it’s about math. Past pension promises may exceed the potential for pension asset growth.

Whether we are currently or were former California residents, as I am, we all want California to prosper. We want a better education system and excellent public services. Unfortunately, that’s not today’s California.

Total government spending is 20.8% of gross state product — the 15th highest in the nation.  However, the state has fewer teachers (224) per 10,000 population than the national average, vs. the national average (275) and Texas (324). Our teachers are the nation’s highest paid, while California’s combined taxation is also the nation’s highest.  Yet, student test scores are the nation’s fourth lowest. Screaming won’t help solve this problem.

In California’s pension system (CalPERS), employee and employer contributions and investment returns are supposed to pay for pensions.  Otherwise, the state general tax fund covers the difference.

This shortfall is growing worse. CalPERS recently announced an annual investment return of 0.61%, far short of the 7.5%-rate needed to meet obligations. Every year CalPERS misses that target, the state falls further behind.  California taxpayers now face a $139 billion bill for retirement benefits that workers have already earned. So even if the state were to make future-hire reforms, or lay off every single CalPERS-covered employee, the unfunded liability would still exist. With a roughly $139 billion pension shortfall, every household owes around $11,000 for public pensions.

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