Katy Grimes: A fourth California city is on the verge of bankruptcy. What a surprise. Yawn.

The news that Compton is about to file for federal bankruptcy protection is not surprising. But news that Santa Monica may also file, is.

Sadly, this is probably just the fourth in a long line of insolvent cities and municipalities preparing to file for bankruptcy.

Don’t say we didn’t warn you about the consequences of gross mismanagement, corruption, legacy building, criminal negligence, and incompetence of public officials.

While some in the media have been blaring the warning bells, most elected lawmakers have been practicing public denial and distancing themselves from culpability.

But heads will roll if pension checks bounce, or aren’t issued, or bond payments aren’t made.

Take Stockton… please.

Ed Mendel at Calpensions writes, “A Stockton bankruptcy proposal does not cut pensions, but the city wants to eliminate $197.5 million in pension bond payments over the next 25 years, a plan opposed by the bond insurer that would be stuck with the tab.

The bankruptcy proposal would end pension bond payments from the troubled city general fund, which pays for most programs and is deep in the red with a $26 million deficit that could balloon if employee lawsuits overturn emergency pay cuts.”

“Stockton issued $125 million worth of pension obligation bonds in 2007 to cover an ‘unfunded liability that was largely created by enhanced retirement benefits in the late 1990s and early 2000s,’” Mendel reported.

“The city proposal said $124 million remains to be paid. With interest, the city is scheduled to spend $239 million paying off the bonds by 2038, about 62.6 percent from the general fund and 17.4 percent from special funds.”

But the clincher is not just what Stockton pays now–“the annual city payment to the California Public Employees Retirement System, listed as $16.8 million, is expected to jump to $22.3 million next year and nearly double to $30.2 million in fiscal 2020-21.”

Read the entire story HERE — Mendel is the best when it comes to understanding pensions, and pension debt. As more California cities file for bankruptcy, it will be very interesting watching how they manage pension debt.

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.