California Takes Huge Leap Toward Default

MARCH 15, 2011

BY CHRISS STREET

California taxpayers just took a huge punch in the nose from the same actuaries who provided the cover for state politicians to spike public employee retirement benefits. The latest shocker comes from California State Controller John Chiang, who just unveiled a new actuarial report
that shows California faces another unfunded debt of $59.9 billion to pay for retiree health and dental benefits over the next 30 years.

Controller Chiang highlighted that the unfunded liability grew during the 2010 fiscal year by $8.1 billion; an amount equal to almost 25 percent of this year’s entire California kindergarten through high school education budget.

Actuaries have aided and abetted the explosion in under-funding of pension and healthcare liabilities for public employee pension plans over the last 10 years. With most public employee pension plans fully funded in 2000, a preposterous actuary study gave assurances that the technology stock market bubble of the 1990s would continue its high returns and never burst.

California Gov. Gray Davis and the Legislature used the study, paid for by employees who are eligible for retirement benefits, to justify 40 percent retroactive increases in lifetime pension payments and enhancements of retiree healthcare. During 2008 and 2009, a bogus California actuary study claiming the retiree healthcare plan was over-funded was used to justify waiving mandatory employee contribution increases to cover accelerating healthcare insurance premium increases.

The bulk of this new increase in retiree costs came as the result of the California Public Employees’ Retirement System (CalPERS) actuaries “discovering” after the fact that employees with their new pensions payments spiked and healthcare enhanced are retiring earlier, retirees are living longer, and healthcare costs are increasing faster than the crony projections by the actuary. The new actuary calculations now estimate the total un-funded California retiree costs are about $340 billion.

Unlike the state pension plan, which has a prayer of large investment returns reducing its unfunded liabilities, California retiree health benefits are covered on a “pay-as-you-go” basis. This means that actuary “error” that resulted in the new massive un-funding will start coming out of the state budgets immediately. California state retiree benefits have risen from 4 percent of the state budget to 11 percent in just 10 years; and both pension and healthcare systems are still irresponsibly under-funded. The vicious impacts of this sky-rocketing cost of retiree healthcare may result in a 10 percent teacher layoff and an equal increase in class sizes next year.

Before this latest bombshell hit, California already had a $28 billion budget deficit through the middle of 2012, and the state needed to borrow $15 billion by August, just to continue to make payroll. California already has the lowest credit rating of any state in the nation and a $60 billion surprise will not go unnoticed by the credit agencies who were already preparing to downgrade California’s rating.

Over the last 10 years, the actuaries have hidden the true breadth of California’s unfunded retiree costs. Taxpayers should be extremely suspicious as to why the actuaries came clean now. Perhaps the timing of the CalPERS actuary’s announcement is tied to their insider fear that California is on the verge of default.

Chriss Street was the treasurer-tax collector of Orange County from 2006-2010.

6 comments

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  1. larry 62
    larry 62 15 March, 2011, 11:50

    Do you see a train rolling down hill with no brakes?

    Reply this comment
  2. Bobnormal
    Bobnormal 15 March, 2011, 17:00

    Can’t these “people” be held to account?Who are they? who pays them?

    Reply this comment
  3. lee timmerman
    lee timmerman 15 March, 2011, 22:13

    When in the course of human events the government continues to disregard the needs of its people and continues to harm those it swore an oath to protect, it becomes the duty of every citizen to throw off the binds of economic slavery and establish a new form of government. I wonder if “We the people”, will ever do what needs to be done to become the nation our forefathers hoped and prayed for. When asked what they had given us, Ben Franklin replied, “A republic Madame, if you can keep it.” I not only wonder if we can keep it, I wonder if we are worthy of it?

    Reply this comment
  4. Peyton Farquhar
    Peyton Farquhar 16 March, 2011, 11:06

    Wisest thing to do is file BK. If the retirees with their bloated pensions want health bennies, then they have to start footing it themselves. The party is over. California can’t afford lavish benefits to public employees, *including* vastly overpaid State Legislature “representatives.”

    Reply this comment
  5. ggswede
    ggswede 16 March, 2011, 14:51

    Bye-Bye California.The sooner I see you in my rear view mirror,the better !

    Reply this comment
  6. PatriotOne
    PatriotOne 28 March, 2011, 01:29

    !! NOTICE !! – “The Constitution is a charter of negative liberties; it tells the state to let the people alone, it does not require the federal government or the states to provide services, even so elementary a service as maintaining law and order.” Bowers v Devito, 686 F.2nd 616 (7th Cir. 1982)

    Did any of the liars and thieves (government employees) mention ^^^^^^ while they were seeking your blind vote or your failure to vote at all?

    Reply this comment

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