Pension costs burden CA budget

Gov. Jerry Brown still hasn’t gotten his state’s budget problems beat.

A high-profile new report showed California still faces massive liabilities extending far into the future. The study, released by the nonpartisan Legislative Analyst’s Office, tallied over $340 billion in debts, deferred payment and other budgetary burdens “that will affect the state’s financial health in the future.”

According to the report, “Addressing California’s Key Liabilities,” there was some good news mixed in with the bad. The LAO was relatively sanguine toward a substantial portion of California’s long-brewing public pensions crisis. The report’s Executive Summary lauded “recent actions taken by the California Public Employees’ Retirement System (CalPERS) board … to address the unfunded liability for state employee pension benefits in about 30 years.”

Given the legal controversy surrounding CalPERS’ role in city bankruptcies, however, the LAO’s praise may not go far. Litigation concerning the bankruptcy of Stockton, for instance, has pulled CalPERS back into potential liability. “Even though the city decided not to try to cut its CalPERS payments,” the Sacramento Bee reported, “Judge Christopher Klein said he could rule that the pension fund could be treated like other creditors.”

That’s significant because a ruling along those lines would affect CalPERS statewide. CalPERS is locked in a closely watched mediation process with the city of San Bernardino, which hopes to avoid millions in back payments to CalPERS as a consequence of declaring bankruptcy.

CalPERS, however, isn’t the only pension system at the center of the LAO report. There’s also CalSTRS, the California State Teachers’ Retirement System. There, the LAO fingers “$200 billion in liabilities” that “merit further legislative attention.”

In his revised May budget, Brown has a plan to address the shortfall. It’s already drawing criticism. He aims to make a down payment on CalSTRS’ $74 billion shortfall — followed by $5 billion in increased funds every year for 30 years, once it’s fully phased in after seven years of stepped-up payments. Notably, $3.7 billion a year will be expected to come from school districts themselves — not a popular policy at the local level.

It’s also a disappointment for statewide education activists, who want big state dollars spent on universal preschool and Common Core implementation. They’d counted on the support of legislators like state Sen. Darrell Steinberg, D-Sacramento, who had raised hopes for a universal preschool initiative in his final year in office.

Brown’s bipartisan critics

Brown, however, has been keen to spend state dollars as quickly as he shifts costs downward. Under his watch, California has racked up some $7 billion in tax increases, drawn from income and sales taxes from Proposition 30, which voters passed in 2012.

But they’re only temporary measures. Accounting analysts and budgetary experts expect Brown to show that California can attack what Brown calls its “wall of debt” before the short-term tax increases expire. Hoping to meet expectations, Brown has vowed to pay down half of the debt wall, build a rainy day fund, and tackle CalSTRS’ $74 billion shortfall.

Brown’s efforts have encountered resistance from state Democrats, who want to forge ahead with broad new initiatives on social programs. New Assembly Speaker Toni Atkins, D-San Diego, gave a sense of Democrat lawmakers’ priorities in a statement. “As we finalize the budget over the next few weeks, we will also look to expand opportunity by combating child poverty, improving access to higher education, increasing funding for transportation projects, and taking strides to expand affordable housing,” she said. 

Perhaps even more surprisingly, some Republicans have questioned Brown’s relatively modest version of budgetary thrift. “I was surprised and disappointed that he didn’t address other important priorities,” said Assembly member Kristen Olsen, R-Modesto. From “water storage and drought relief” to higher education and “other investments,” Olsen slammed Brown for failing to “grow our economy” with his focus on increasing California’s cash reserve.

That’s striking evidence that California’s budget battles won’t soon be resolved.