Upbeat S&P report on CA also has CalSTRS warning

CalSTRSThe recent Standard & Poor’s report upgrading California’s credit rating prompted headlines not just in the Golden State but in Washington and on Wall Street, where it was depicted as part of Gov. Jerry Brown’s narrative of the state’s continuing rebound. Here are excerpts of the Sacramento Bee’s coverage:

Standard & Poor’s attributed California’s improving budget outlook more to reduced discretionary spending than to tax increases passed in 2012. The fourth-term governor, a relatively moderate Democrat, is under pressure from social service advocates and some lawmakers of his own party to restore services cut during the recession.

This is a crucial point. Many Democratic lawmakers cite Proposition 30’s temporary sales- and income-tax increases as putting the state on the path toward fiscal stability. But to outsiders crunching the numbers, what’s been even more important is Brown’s refusal to go along with the old theory of “baseline budgeting,” which holds that state agency spending must go up by at least the amount of inflation every year, no matter what.

The Bee, unlike most papers, also noted an S&P warning:

“For California, a future revenue slump isn’t only possible, it’s expected,” the credit rating agency Standard & Poor’s said in a report.

An over-optimistic assessment of the state’s future revenue growth, the report said, would be “the most significant identifiable threat to the state’s ongoing fiscal recovery.”

S&P wary of pension bailout costs

But what got no coverage that I saw was S&P’s warning about the immense headaches that state leaders will face as the CalSTRS bailout costs kick in. Here’s the short version: “the state teachers’ retirement system (CalSTRS) is in need of a long-term funding strategy. ”

The bailout mandates that total annual contributions to CalSTRS go from $5.9 billion in 2014 to at least $10.9 billion in fiscal 2020-21. Of the additional $5 billion, 70 percent is to come from school districts, 20 percent from the state general fund and 10 percent from teachers. But since school districts get nearly all their money from the state, the deal actually is likely to require that the state come up with an extra $4.5 billion a year in fiscal 2020-21. The prospect that school districts will be forced to cut elsewhere to pay for the bailout is unlikely.

This is from a May 2014 Cal Watchdog look at the daunting long-term budget numbers:

[We will see] perpetual junkyard-dog budget fights in which the CTA and CFT — determined to grab every last dollar to maintain the status quo of teacher pay raises — fight constantly over funding with every competing lobby or interest group.

Why? Because the bailout is going to cost so much, and in the zero-sum game of state budgeting, the question is whether the cost is absorbed in the larger K-12 state budget — or out of the hides of other state programs. … 

The CTA and the CFT didn’t achieve their dominance of Sacramento by playing nice. Covering the cost of the CalSTRS bailout going forward is going to be the Sacramento version of the federal budget sequester for non-education budget categories. Spending on just about everything but K-12 is going to be curtailed.

It the next year or two, as this sinks in, the push to make the Proposition 30 sales- and income-tax hikes permanent is likely to go from background noise to the biggest issue in Sacramento.


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  1. Tough Love
    Tough Love 11 February, 2015, 11:27

    Taxpayers should renege on the 50+% share of the promised pensions that would NEVER had been granted in the absence of the Public Sector Union/politician collusion.

    Greed HAS consequences.

    Reply this comment
    • SkippingDog
      SkippingDog 11 February, 2015, 12:31

      When you keep saying kooky things like that, you just look increasingly like some fringe crackpot. People like you are the reason many public pension laws are so strongly protected by the law.

      Reply this comment
      • Tough Love
        Tough Love 11 February, 2015, 15:04

        As a recipient of a Public Sector pension I’m not surprised by your extremely narrow view.

        From the standpoint of a well educated Taxpayer (me), it’s quite clear that the EXTREMELY generous pensions (and retiree healthcare benefits) promised Public Sector workers would be a great deal LESS generous the favorable votes of our elected officials were BOUGHT with Public Sector Union campaign contributions and election support.

        To deny that is common of the insatiable-greed & to-hell-with-the-Taxpayers mindset of most Public Sector workers.

        Reply this comment
        • NTHEOC
          NTHEOC 11 February, 2015, 15:16

          Public Sector Union campaign contributions and election support.
          Tough love, as soon as private sector big business,private sector corporations, and millionaire out of state donors stop contributing to campaigns and elections for their own benefits then I would support your stance on unions. Would you agree? Until then it is what it is……sorry TL!

          Reply this comment
          • Tough Love
            Tough Love 11 February, 2015, 15:33

            NTHEOC, Didn’t your mother ever teach you that 2 WRONGS do not make 1 RIGHT ?

            Their is ZERO justification for these grossly excessive 80-90% taxpayer-funded pensions, and as funds dry up (and Taxpayers wise up) many Public Sector pension plans will pay only a modest portion of these grossly excessive “promises”.

  2. Tough Love
    Tough Love 12 February, 2015, 07:18

    Required reading for those who think CA’s pensions can’t (and won’t) ultimately be reduced ……….


    Reply this comment
  3. S and P 500
    S and P 500 13 February, 2015, 02:57

    “The prospect that school districts will have to cut elsewhere is unlikely”…

    It’s also practically a given that budget cuts that teachers have been complaining about (music and arts classes, counselors, librarians, nurses and building repairs eliminated from the budget) will NEVER be restored. That’s fine with me and it may even be okay with teachers, who only care about their pay and pensions. Whether or not the state can find other places to cut besides education remains to be seen. I’d like to see CTA get into a fight with the police and fire dept. unions over pension money. There’s only so much to go around.

    Reply this comment
    • Tough Love
      Tough Love 15 February, 2015, 13:00

      Yes, there will be battles for the “spoils” between the various Unions, but also between those already retired/older long-service workers, and the younger/newer workers … the latter of whom (if they have any brains), should realize that all of THEIR pension contributions are NOT being invested to support THEIR retirements, but are going out the door NOW to pay those already retired (and soon to retire). THEY are being “suckered” even more than they taxpayers.

      Reply this comment

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Chris Reed

Chris Reed

Chris Reed is a regular contributor to Cal Watchdog. Reed is an editorial writer for U-T San Diego. Before joining the U-T in July 2005, he was the opinion-page columns editor and wrote the featured weekly Unspin column for The Orange County Register. Reed was on the national board of the Association of Opinion Page Editors from 2003-2005. From 2000 to 2005, Reed made more than 100 appearances as a featured news analyst on Los Angeles-area National Public Radio affiliate KPCC-FM. From 1990 to 1998, Reed was an editor, metro columnist and film critic at the Inland Valley Daily Bulletin in Ontario. Reed has a political science degree from the University of Hawaii (Hilo campus), where he edited the student newspaper, the Vulcan News, his senior year. He is on Twitter: @chrisreed99.

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