CA still struggling with unfunded liabilities

Despite a concerted effort from Gov. Jerry Brown to keep California from slipping back into the financial abyss, the state’s finances remain threatened by massive unfunded obligations.

“It’s California’s debt and liabilities that are concerning financial analysts, particularly the state’s rapidly growing unfunded retiree health care costs, which grew more than 80 percent over the past decade. California has promised $74 billion more in health and dental benefits to current and retired state workers than the state has put aside,” the San Francisco Chronicle reported.

Adding to the concern, new reporting rules have cast new light on local debt burdens. Changes issued by the Governmental Accounting Standards Board caused California governments to begin reporting “pension debts differently in their 2015 financial statements, which is becoming a wake-up call,” Reason noted. “Medical costs and other non-pension benefits will be accounted for differently in the 2017-2018 fiscal year. As a result, localities are facing much larger pension debts than previously reported.”

Observers have also had their eye on final developments in the case of one of California’s municipal canaries in the pension coal mine. “The bankrupt city of San Bernardino, California, said in a court filing […] it had reached a tentative agreement with the creditor holding its pension obligation bonds on how the debt would be treated in the city’s plan to exit bankruptcy but did not provide details,” according to Reuters.

Burdening Brown

CalPERS, the fund at the center of the ongoing pensions controversy, remained a sticking point. Its refusal to secure higher servicing payments created “a heavy political lift from Brown,” as the Contra Costa Times wrote in an editorial. “If CalPERS had required higher payments, he could have simply planned for it in his state budget. Without the requirement, he must persuade the Legislature to free the money.” Amid the recession, its funded ratio, the board wrote, “plummeted to 61 percent” in two years. “If that happened today, it would be devastating.”

“CalPERS is especially vulnerable because it assumes it can earn returns of 7.5 percent annually. To try to hit that target, it must make aggressive investments. In other words, it must take risk, which comes with upside potential and downside dangers. The higher the investment target, the greater the exposure in a down market.”

Bond struggles

One of Brown’s would-be replacements in the governor’s mansion, state treasurer John Chiang, has sought to shift expectations around California’s budgetary reliance on bond measures. Bond use has “risen substantially in California, with the state’s reliance on borrowing for infrastructure resulting in 1 of every 2 dollars spent on those projects going to pay interest,” the Chronicle noted, citing figures from the Department of Finance. But although Chiang suggested earlier this month that the state should “rethink” its use of bonds, Chiang has embarked “on a national tour this month aimed at seducing investors with an environmentally friendly investment alternative,” according to the San Jose Mercury News. “Chiang wants to plant a full-fledged green bond market. Individuals and institutions, such as mutual funds and hedge funds, will have the opportunity to invest. The bonds promise to appeal to environmentally minded investors, as well as those looking to diversify portfolios overly dependent on fossil fuels — in case future climate change regulations sprout up.”

But in a sign of the inertia and perverse incentives that critics often associate with entrenched bureaucracies, the bonds have been built to stretch beyond their narrowly tailored confines if given the right kind of tug. “Instead of rules, green bond issuers rely on a set of nonbinding guidelines called the Green Bond Principles, drafted by an international group of issuers and investors,” the Mercury News noted. “The lack of third-party monitoring means issuers can label almost anything a green bond. If the bonds’ popularity outstrips the number of green projects, issuers could have an incentive to label bonds as green, even when they’re not.”


Write a comment
  1. Ronald
    Ronald 21 February, 2016, 07:01

    Green bonds would subsidize the emissions crusade that has not addressed the fact that the subsidized “renewable” energy sources such as wind and solar are ONLY able to provide intermittent “electricity” to the grid. Neither wind nor solar can produce the chemicals and chemical by-products from crude oil that are required to manufacture the components required of all the industries and infrastructures.

    California’s flagship climate change policy Assembly Bill 32, the Global Warming Initiative was signed into law in 2006 when California was contributing 1% to the worlds green hose gases. And now, 10 years later, by AVOIDING transparency of the results of the California emissions crusade, the state can focus on how to spend the cap and trade TAXES they receive for the bullet train.

    Now, a decade later, California still contributes a miniscule 1 percent ( 1%) and has had little to no impact on the reduction of global greenhouse gas emissions. With many of the businesses that emit now departed from California, the contributions to the worlds greenhouse gases has actually INCREASED as no other state or country comes close to California which has the most stringent environmental laws and regulations in the world.

    Yet, California, by avoiding transparency of the results of the California emissions crusade remains on a go-it-alone crusade to micro manage the California emissions that generates billions of dollars from the cap and trade TAXES for the government at the expense of businesses and the financially challenged. With numerous state government agencies there is a feeding frenzy on getting a piece of the lucrative cap and trade tax revenue, yet there remains no progress in California reducing its contribution to the Worlds Greenhouse gasses.

    Regarding California’s massive unfunded obligations to pay the state’s rapidly growing unfunded retiree health care costs, is CONTRARY to the international business world that is intelligent enough to know that defined benefits are financial disasters to any business, thus all businesses focus on the known, i.e., defined CONTRIBUTIONS alone. When public sector contracts are negotiated by public sector employees that hammer out a contract with defined benefits that forces under duress a third party, the taxpayers, to cough up the necessary dough, then it’s truly a case of the inmates running the Asylum as well-connected public sector unions overpower the poorly represented taxpayers. Any challenges to that “racket” would be heard before judges who have pension and benefit package they want to protect. Again, seems like a racketeering cover-up right before our public eyes.

    Reply this comment
  2. Queeg
    Queeg 21 February, 2016, 08:41

    The Publicans comrades are coming for gold!

    Reply this comment
  3. Dude
    Dude 21 February, 2016, 10:42

    “California has promised $74 billion more in health and dental benefits to current and retired state workers than the state has put aside,”

    “California” didn’t. Moonbeam and his enforcer thugs at SEIU did. It’s a guarantee that the SEIU will be backing Moonbeam in a campaign to further dig into our pockets to fund their bloated Cadillac retirement.

    Reply this comment
  4. DavidfromLosGatos
    DavidfromLosGatos 21 February, 2016, 11:53

    “CA still struggling with unfunded liabilities”

    And, the sun still rises in the east, and sets in the west.

    Reply this comment
  5. tmaddison
    tmaddison 21 February, 2016, 17:02

    “As a result, localities are facing much larger pension debts than previously reported.”

    No, they’re not. They’re facing the same pension debts, it’s now just transparent to the public.

    If you throw away the bank statement showing you’re overdrawn, that doesn’t mean you’re not overdrawn…

    Reply this comment
    • Rex the Wonder Dog!
      Rex the Wonder Dog! 21 February, 2016, 21:51

      Hey, we are coming off the THIRD longest BULL market in US history, and we are at a 73% funded level.,…what could possibly go wrong!!!!!!!!!!

      Reply this comment
  6. Bill Bradshaw, Apple Valley
    Bill Bradshaw, Apple Valley 21 February, 2016, 17:29

    Is this some sort of Bernie Sanders scheme where the “unfunded liabilities” are hidden from our “surplus”?

    Reply this comment
    • Ted. Mentor to the doomed....Builder of the FUTURE!
      Ted. Mentor to the doomed....Builder of the FUTURE! 21 February, 2016, 20:34

      LOL Bill o from Apple Valley!

      Don’t drink ALL of the Kool Aid ™ in one sitting, it will give you a stomach ache! The surplus dos not paty the so called un funded liabilities because the bill aint due little buddy! They are future obligations which are paib by new employees, the state as compensation foir work done and mostly by the investment fund! Stay away from the trolls on these boards– they will use their average intellect to poison you!!

      Reply this comment
      • Rex the Wonder Dog!
        Rex the Wonder Dog! 21 February, 2016, 21:50

        “paty”…”bill AINT due”…”paib”….”foir”….

        What a moron!

        Hurry, post now TROLL!

        Reply this comment
        • The Ted Steele System
          The Ted Steele System 22 February, 2016, 09:11

          we found a job the cuddle poodle could do!

          Typo finder!!!!!!!!!!!! LMAO

          Reply this comment
        • SkippingDog
          SkippingDog 22 February, 2016, 10:20

          Did you pay the attorney’s fees the court ordered yet, Rex? I’m sure the Freedom Communications attorneys would appreciate a check from you, just as my lawyer would. Can you get one in the mail – soon?

          Reply this comment
  7. O'moore
    O'moore 22 February, 2016, 06:31

    Any rational discussions of state and local govt. pensions must begin and end with a limit on the size of the government employer’s annual contribution. 10% of salary with a 2% a year(20% a decade) lid on salaries is rational. Any lawyer who did not advise against a scheme that left the agency with an uncontrollable pension deficit must go. This system is a cruel hoax that has destroyed this once great state(pre-Jerry Brown).

    Reply this comment
    • Dude
      Dude 22 February, 2016, 08:41

      “the state’s finances remain threatened by massive unfunded obligations”

      But how can that be you Brown, liberal butthead? OblowmeCare was supposed to bring healthcare costs down right. You Dims are all a bunch of liars.

      Reply this comment
    NTHEOC 22 February, 2016, 10:46

    Another DOOMER retread article! I swear its like groundhog day at the CWD every time you read this doomer site. California is not struggling with any of this so called unfunded liability with pensions, in fact just the opposite is happening and California is full steam ahead with a robust and booming economy not seen by any other State and is on track to continue booming! Yes, there are less than a handful of cities still recovering from the fiscal mismanagement of their leaders pet projects and other issues but that’s about it. We have proven by the FACTS that pensions have nothing to do with it. Btw, love my [email protected] still.

    Reply this comment
  9. SkippingDog
    SkippingDog 23 February, 2016, 10:56

    I think we should all chip in and help James Poulos afford a decent barber.

    Reply this comment
    • bob
      bob 23 February, 2016, 13:41

      Sorry, after having to pay for your pension and healthcare costs, for college tuition for illegal aliens (plus their food, shelter and healhcare), for the bullet train, for cap-n-tax…er I mean cap-n-trade and a myriad of other gooberment demands, I have nothing left for James.

      Reply this comment
    • NTHEOC
      NTHEOC 23 February, 2016, 13:45

      LOL!! His pic does look like an active shooters mugshot….Kinda crazy looking!

      Reply this comment
      • Dude
        Dude 23 February, 2016, 13:49

        “Active shooter”? I thought he looked like a typical Dimocrat.

        Reply this comment
  10. desmond
    desmond 23 February, 2016, 18:14

    NTHEOC, The baby boomer message to Milennials and our children.
    F You.
    We will have the last word, f ker.
    Judas Cradle will put an end to 3 are 30. Nice cold metal covered with warm oil to smooth the descent.
    Not very tech, but perfect for the task. Your spawn will go first, just like France, 1789.

    Reply this comment
  11. WC Varones
    WC Varones 24 February, 2016, 20:21

    Haha wait til you see CalPERS’ disastrous 2016 performance, due to be announced in July.

    They missed their +7.5% by a mile!

    Reply this comment

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Tags assigned to this article:
John ChiangSan BernardinoCalPERSGov. Jerry Brown

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