{"id":8347,"date":"2022-03-05T15:41:51","date_gmt":"2022-03-05T22:41:51","guid":{"rendered":"https:\/\/sandiegonewsdesk.com\/?p=8347"},"modified":"2022-03-04T15:44:48","modified_gmt":"2022-03-04T22:44:48","slug":"reality-bites-new-cpc-analysis-shows-california-is-1-6-trillion-in-debt","status":"publish","type":"post","link":"https:\/\/sandiegonewsdesk.com\/?p=8347","title":{"rendered":"Reality Bites: New CPC Analysis Shows California is $1.6 Trillion in Debt"},"content":{"rendered":"

This was originally published in an email by California Policy Center<\/p>\n

Gov. Gavin Newsom and California lawmakers continue to trot out their state\u2019s \u201cmassive budget surplus\u201d dog-and-pony\u00a0show<\/a>, ignoring the inconvenient truth that a budget surplus cannot independently exist alongside the fact that California is wildly in debt.<\/p>\n

The latest California Policy Center\u00a0analysis<\/a>\u00a0shows that California state and local government debt now stands at nearly $1.6 trillion, or about half the state\u2019s GDP. That\u2019s $40,000 of debt per capita.<\/p>\n

The total includes $145 billion in state long-term debt, $361 billion in total local debt, and $184 billion in cumulative OPEB (\u201cOther Post Employment Benefits\u201d) liabilities\u00a0owed<\/a>\u00a0by state and local agencies, mostly for health insurance, for current and future retirees. Add that to the Office of Legislative Analyst\u2019s estimate that the state owes\u00a0$67 billion<\/a>\u00a0in deferred infrastructure maintenance \u2014 the sort of capital improvements the state has ignored in its race to spend money elsewhere.<\/p>\n

But that still doesn\u2019t include the fiscal elephant in the room: pension obligations. CPC estimates that state and local governments owe the state pension system a staggering $882 billion.<\/p>\n

California\u2019s State Controller officially calculates the state\u2019s unfunded pension liability at $298 billion. \u201cBut we believe that\u2019s overly optimistic,\u201d says study author Edward Ring.<\/p>\n

In 2012, Moody\u2019s Investors Service revised its method of valuing pension liabilities, adjusting the discount rate it uses when calculating the present value of projected future pension payments. Moody\u2019s now recommends using the high-grade long-term corporate bond index discount rate, today pegged at 3.15 percent. In contrast, California\u2019s pension systems use the annual-rate-of-return at which they expect their assets to appreciate. For CalPERS, California\u2019s largest pension system, that rate is currently set at 6.8 percent.<\/p>\n

The difference between CalPERS\u2019 6.8 percent and Moody\u2019s 3.15 percent is $584 billion. Given the size of this difference and the dire consequences of getting the projections wrong, the controversy over which percentage to use is probably the most consequential public debate that California is not bothering to have.<\/p>\n

So did CalPERS management use accounting \u201cgimmicks\u201d to enable financially unsustainable pensions? They\u00a0did<\/a>, egged on by government union leaders, using optimistic projections that bet on the success of tech stocks \u2014 and the rest of California\u2019s government pension systems quickly followed suit.<\/p>\n

Yet even after a remarkable 10-year technology-driven bull market, the state\u2019s pension systems acknowledge they\u2019re only 71 percent funded today. And that number is based on tax revenues that are dependent on high-wage earners reaping windfalls during tech booms. But when the boom busts, tax revenues will plummet, tech-driven investment returns of the pension funds will falter, and state and local governments will face unprecedented budget deficits.<\/p>\n

California taxpayers are in for a shock when those chickens finally come home to roost. In order to make legally required contributions to the pension system, California governments will boost taxes and cut services. California cities have already cut services \u2014 furloughing staff, closing on Fridays, closing parks, raising fees. In the not-too-distant future, California could face the far more extreme service level bankruptcy we\u2019ve seen in Greece, Italy, Spain and Portugal.<\/p>\n

For now, California continues to play the dangerous game of treating pension obligations like a money transfer: paying their obligations to retirees with the income from workers paying into the system today. That \u201csolution\u201d is not sustainable, especially when inflation is factored in.<\/p>\n

So what can be done? To restore stability, pension reform must be a part of a broader package of essential policy shifts. The hard choices California\u2019s lawmakers and pension boards must make will determine if government balance sheets can weather the storm of economic turbulence or if Californians will face a devastating financial crisis in the years ahead.<\/p>\n

Read the full CPC analysis\u00a0here<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

This was originally published in an email by California Policy Center Gov. Gavin Newsom and California lawmakers continue to trot out their state\u2019s \u201cmassive budget surplus\u201d dog-and-pony\u00a0show, ignoring the inconvenient truth that a budget surplus cannot independently exist alongside the fact that California is wildly in debt. The latest California Policy Center\u00a0analysis\u00a0shows that California state…<\/p>\n","protected":false},"author":3,"featured_media":8348,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-8347","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-politics"],"yoast_head":"\nReality Bites: New CPC Analysis Shows California is $1.6 Trillion in Debt - San Diego News Desk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/sandiegonewsdesk.com\/?p=8347\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Reality Bites: New CPC Analysis Shows California is $1.6 Trillion in Debt - San Diego News Desk\" \/>\n<meta property=\"og:description\" content=\"This was originally published in an email by California Policy Center Gov. Gavin Newsom and California lawmakers continue to trot out their state\u2019s \u201cmassive budget surplus\u201d dog-and-pony\u00a0show, ignoring the inconvenient truth that a budget surplus cannot independently exist alongside the fact that California is wildly in debt. 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