Guv Calls Sham Special Session

NOV. 18, 2010

By ANTHONY PIGNATARO

For the eighth time in his seven-year administration, Gov. Arnold Schwarzenegger has called the Legislature back into special session to deal with the state’s budget problems. And for the eighth time, the special session will generate a lot of news but little substantive progress on the need to fulfill the state’s constitutional requirement for a balanced budget.

It’s known as a “Prop 58 session” and would last 45 days. It starts on Dec. 6, and requires the governor to put forward a budget plan to deal with a “fiscal emergency.” Schwarzenegger declared such an emergency on Nov. 12 (two days after Senate Republican Leader Bob Dutton, R-Rancho Cucamonga, asked him to) in response to a Legislative Analyst’s Office report showing that this year’s budget – which was 100 days late – actually had a $6 billion deficit. The LAO also said next year’s budget would have a $19 billion deficit.

“I will call the Legislature into Special Session on the day the new members are sworn in to address a projected shortfall in this year’s budget,” Schwarzenegger said in a Nov. 12 news release. “I know this will be difficult, but as we know from experience, putting off the hard decisions to bring spending in line with our revenues only makes solving the problem even more difficult. Legislators will have to face the ugly truth that we can only spend the revenues we have.”

Oh, if that were the only budgetary problem the state was facing. See, the budget deficit right now facing the state isn’t $6 billion or even $25 billion – it’s more than $100 billion. The reason can be summed up in two words: “unfunded liabilities.”

“If governors and legislators had truly balanced the state’s budget, no taxpayer’s financial burden would exist,” Sheila Weinberg, founder of the Institute for Truth in Accounting, has said of her organization’s ongoing 50-state budget analysis (they haven’t yet gotten to California). “A state budget is not balanced if past costs, including those for employees’ retirement benefits, are pushed into the future.”

Finding out the extent of California’s unfunded liabilities is relatively simple, to a point. For this story, I found a relatively straightforward (and depressing) accounting on pages 154-156 of the state’s Comprehensive Annual Financial Report (CAFR). The most recent CAFR dates to March, and a spokesperson for the State Controller’s Office, which publishes the report, says the 2010 CAFR won’t be done until March 2011 (270 days after the end of the fiscal year) but it contains the most recent such data available.

According to the CAFR, the Public Employees’ Retirement Fund (PERS) is carrying a $16.3 billion deficit (called an Unfunded Actuarial Accrued Liability). It gets worse: the Judges’ Retirement Fund has a $3.6 billion deficit, the State Teachers’ Retirement Defined Benefit has a $22.5 billion deficit, the Other Post-Employment Benefit Plan sports a $51.8 billion deficit and the University of California Retiree Health Plan has a $13.7 billion deficit. That adds up to $107.9 billion that someday the state will have to pay, on top of the paltry few billion that spurred Schwarzenegger to call for a special session.

“There’s no law that requires they pay these right now,” said Marcia Fritz, a Citrus Heights accountant and president of the California Foundation for Fiscal Responsibility, a pension-reform advocacy group. “They’re just numbers on a piece of paper.”

To be fair, Republicans in the Legislature have advocated addressing these liabilities now (click here for a Senate Republican Caucus fact sheet on the pension issue) but their minority status means they can accomplish little.

“This is an issue that Republicans have been harping on for a number of years,” said Jann Taber, spokesperson for the Senate Republican Caucus. “The problem is that Democrats always say that addressing these types of future liabilities doesn’t help solve the immediate problem, which is true but we need to narrow the gap and so Republicans feel we should deal with the current problems and the outlying liabilities.”

But even on the question of the $6 billion in new deficits, Democrats have already declared their intentions to simply wait out Schwarzenegger. “A lot of Democrats just want to deal with the governor-elect,” Alicia Trost, the spokesperson for Senate President Pro Tem Darrell Steinberg, told the Contra Costa Times on Nov. 16. This is relatively simple for them to do, since Jerry Brown takes over as governor on Jan. 3, well within the 45-day special session.