California’s pension liabilities are primed to rob the state’s piggy bank.
That’s the alarming claim coming from a new report by the right-leaning Pacific Research Institute (PRI) called California’s Pension Crowd-Out.
And it’s true, says UC Berkeley pension expert, Sarah Anzia.
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“There is no doubt in my mind that this system is under serious pressure and that something is going to have to happen down the road to change things,” she said. “This path we're on is unsustainable.”
The report’s author, Wayne Winegarden, cautions that the state needs to face the facts about its pension system and take action now.
“We need to accept that there are these costs and we need to address it, and not just ignore it and pretend it’s not there,” he said.
The costs he mentions are pension payouts and healthcare benefits owed to more than a million public workers in California.
Today, we’re about $170 billion short.
That’s equivalent to almost one-and-a-half times the state’s annual budget or $10,000 for every person living in California.
UC Berkeley’s Anzia says that lack of action now in solving the hefty shortfall could have serious repercussions in the future.
“It's either going to mean cuts to services, big increases in taxes, or they could issue more debt which just kicks the can down the road,” she said. “So the situation is bleak.”
How did we get here?
Each year, California is expected to meet an actuarially calculated estimate, or ARC, each year. This is an estimate that is intended to ensure that pension funds remain solvent.
For the past 11 years California has neglected to meet its ARC obligation, thus creating the $170 billion hole in its coffers.
That fact has increased worry public workers, like San Jose Middle School science teacher Paul Nyhof, who’s only been teaching for about ten years.
“I do have real concerns that thirty years down the road when it's time for me to retire that it will be there, and I think a lot of teachers share that same concern,” he said.
Where does the state go from here?
One solution begins in Sacramento, where state legislators would have to change a long-standing law that says pension benefits for current state employees are untouchable.
Doing so would require changing the state constitution, says Berkeley’s Anzia, which could be tough.
“That is the provision in the state Constitution that is so critical here and that actually makes it very difficult for the state to do anything to address the problem.”
Another option if for the state to change the pension formula for future employees, asking them to contribute more or receive less, but Paul Nyhof worries that would have negative repercussions in his field.
“Teachers already struggle to keep up with the cost of living in this area,” he said. “Asking teachers to pay more is going to be a disincentive. That is going to compound the problem we have of convincing teachers to come into this field.”
Those are similar concerns for other public workers, like cops, first responders, healthcare workers and administrators.
The reality is taxpayers could end up footing the bill for the state’s pension liabilities, a reality Winegarden would rather not face.