By David Kersten.
Orange County Register reporter Teri Sforza quietly released a story that blows the whistle on another fiscal bombshell of bad news at the California Public Employees’ Retirement System (CalPERS).
The story states that according to unofficial preliminary numbers from CalPERS the fund lost about 2% of its market value in the 2015-16 fiscal year that just ended–which represents an estimated $28.5 billion increase in the fund’s unfunded liabilities, according to my rough calculations.
The fund assumes a 7.5% per year annual return despite the fact that no investment officer in the country believes that is achievable in the current environment.
Stanford Professor Joe Nation estimates CalPER’s total unfunded liabilities have increased to an estimated $150 billion, compared to $93 billion just two years ago, according to the Orange County Register report.
And if one assumes a more realistic 4% rate of return (a “Treasury” or “risk-free” rate) the funded liability for Calpers alone is now $412 billion, or the equivalent of three state general fund budgets, Nation said.
For anybody who knows the numbers, and I do, CalPERS is speeding down the track toward financial catastrophe but none of the state’s leading Democrats will even acknowledge that there is a major problem here.
And this ignorance of the problem by California Democrat politicians is perhaps what is most upsetting to me and the small community of pension reform advocates that fully understand the magnitude of the problem and what this means for the state’s future.
The lone voice in the legislature for reform continues to be Sen. John Moorlach (R-Costa Mesa) who has a significant background in public finance and accounting.
“What has me baffled is that this is causing me great anxiety, but it does not seem to have the same impact on my colleagues in Sacramento,” Moorlach said.
Inside sources say most if not all California Republican State Legislators in Sacramento understand the magnitude of the problem but there is not much to be gained politically by going out on the issue prior to a critical mass being reached for reform.
The true culprit for this code of silence in the Legislature is the state’s powerful public employee unions, their political threats, failed logic, and propaganda on the issue.
Dave Low, chairman of Californians for Retirement Security, says the pension reformers are a case of “crying like Chicken Little about how the sky is falling,” according to the Orange County Register report.
Low and the state’s public employee union bosses are playing a dangerous game here that will inevitably blow up in their face and result in major financial hardship, lost benefits, and jobs for their public employees at some point in the not so distant future.
Low won’t even acknowledge a problem with the escalating liabilities, and this is the same position taken by the California Democrat Legislature.
This is an unconscionable policy position to anyone who cares about the future of our state and illustrates why the California Democrat Party is no longer fit to lead California.
California Democrat politicians are too tied to their base which is the public employee unions, and are unable to make decisions that will benefit the state’s future and prevent financial catastrophe.
This whole facade is rapidly deteriorating and the problem will soon become so big that nobody will be able to ignore it.
The only question, is whether it will be too late to save the State of California and its local governments from financial disaster at this point, or whether we will first cross a point of no return that permanently saddles our public agencies and state taxpayers with trillions of dollars in debt that we cannot afford to pay.
David Kersten is an expert on fiscal issues and teaches a masters’ course on public budgeting for the University of San Francisco.