By David Kersten.
The Stanford Institute for Economic Policy Research (SIFER) estimated that California’s pension and retiree health care unfunded liabilities exceeded $1.2 trillion in 2013–significantly higher than all previous reports, according to preliminary figures obtained from SIFEF by Insolvent Film.
The Stanford study the estimated total unfunded liabilities for pension and retiree health care (aka “other post employment benefits” or OPEB) for all California state and local public agencies and found that liabilities are estimated to exceed $1.2 trillion for 2013–several times what previous estimates pegged the figure at, according to professor Joe Nation.
State and local taxpayers are on the hook for the entire debt, which would take an estimated 10 years of California General Fund spending to retire, assuming all tax dollars were dedicated to debt repayment, Nation said.
Nation said the numbers break down as $950 billion for pension unfunded liabilities, which is still a preliminary figure but fairly solid. The $300 billion or so for OPEB liabilities is less solid and preliminary, but estimated to be in the ball park, possibly high depending on how things shake out with the data. The bottom line is that the total debt from public employee benefit costs has likely exceeded a trillion dollars for the first time in the state’s history.
“It could be that high, depending on OPEBs, which we are still exploring. We’ll have a precise number in about a month” Nation stated. The full study, figures and methodology will be out in about a month, Nation said.
A brief discussion with Nation suggested that the official numbers reported by public agencies regarding their liabilities are extremely low because they use an unrealistic investment rate of return.
To illustrate, the California Public Employees’ Retirement System (CalPERS) is currently $100 billion underwater but that assumes an investment rate of return of 7.5%. Nation says there is not an economist in the country that believes this is a realistic rate of return, and that a more realistic rate would be closer to 5%.
If a more realistic number is used for the CalPERS assumed rate of return, CalPERS would actually be more than $300 billion underfunded–more than three times the officially reported number, according to rough estimates.