No spare change under the dome

May 20, 2013

By Katy Grimes

During his press briefing last week while discussing the state’s lack of budgeting flexibility, Gov. Jerry Brown said, “Anyone who thinks there’s spare change around here, they haven’t read the budget.”

Brown released his May Budget Revision last week. And as usual, there were some gaping holes in it.

California Common Sense has had a couple of days to absorb the document and has some observations.

California Common Sense, described as “opening  up the financial black box of state government,” is a non-partisan non-profit, dedicated to opening government to the public through data-driven policy analysis. CCS has tackled some big issues in California, especially the state’s growing unfunded pension debt.

Here’s what they found with Brown’s budget revise:

Pension Unfunded Liability

The budget also says, “Beginning in 2015-16, the state will begin to pay hundreds of millions of dollars more to the California Public Employees’ Retirement System to help pay down the $38.5 billion unfunded liability for employees’ pensions.”

Yet the budget makes no mention of the fact that the non-partisan Legislative Analyst’s Office (LAO) reported that starting in 2014-15, the California State Teachers’ Retirement System will require $4.5 billion in additional annual contributions. Underfunding has driven the growth of the system’s $73 billion estimated unfunded liability. CalSTRS’s Deputy Chief Executive stated that the unfunded liability grows by $17 million each day. Thus each year the state does not contribute an additional $4.5 billion to the teachers’ pension fund, the unfunded liability grows by $6.2 billion. The LAO also reported that without corrective action, the fund will be depleted by 2044 and the state would have to pay for all teacher pensions out of its operating budget on a pay-as-you-go basis.

Rising Retiree Health Costs

Finally, the budget says, “Between now and 2016-17, the costs for retired stated employees’ health care is projected to rise by 59 percent. Yet, the state has not set aside significant money to address the $63.8 billion in unfunded liabilities for future obligations. That liability increases by billions of dollars each year.”

As the budget acknowledges, the state does not prefund its unfunded retiree healthcare liability, but it has yet to implement any other reform to address the issue. As we have reported previously, other reform options include adjusting benefit structures for benefits not yet earned and buying out retirees’ benefits.

Unaddressed Challenges – Rising Health Costs and California Medicaid

The budget says, “Rising health care costs could strain the state budget. Medi-Cal is the budget’s second largest program…. As the state implements federal health care reform, budgetary spending will become even more dependent on the rate of health care inflation.”

The revised budget proposes increasing state funding for the Department of Health Care Services (DHCS), which mainly administers Medi-Cal, to $24.1 billion. Since 2007-08, DHCS spending has increased 62%, 12 times faster than total state spending growth during the period.

Also, despite pending litigation and legislative opposition, the revised budget still includes a 10% cut to Medi-Cal provider reimbursements, which can be applied retroactively to 2011.

Read the entire report HERE, and take a look at California Common Sense website for excellent reports on Demystifying Education Finance in CaliforniaCities can stave off bankruptcies by pre-funding worker benefits, and how The Voice of the People Co-Opted in the California Initiative system.

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