“SACRAMENTO — While lawmakers begin discussing ways to fix California’s cash-strapped teacher pension system, another long-term financial problem continues to fester.

“The cost of providing healthcare to retired state workers is $64.6 billion more than state leaders have set aside to pay, an increase of $730 million from the previous year.

“The new numbers, calculated as of last June, were released by state Controller John Chiang on Thursday. …

“State workers become eligible, after 10 years on the job, to receive taxpayer-funded healthcare for life. The state picks up an even bigger share of the cost after 20 years of employment. 

“California pays the cost of retiree healthcare directly out of the annual budget. That’s much different from how it handles state pensions, which are largely funded by investment returns on gigantic pension funds.”

New role for ‘watchdog’: civic arsonist

Now let’s revisit what Mac Taylor said last November: At a legislative hearing, he opened his analysis of the state’s fiscal picture by declaring there was a“strong possibility of multibillion-dollar operating surpluses within a few years.”

Yeah, if you ignore CalSTRS’ gigantic and growing shortfall, and unfunded retiree health care, than the state is doing just fine.

And if you leave out what happened that one summer in Hiroshima and Nagasaki, Japan didn’t suffer too much in World War II.

Incredible. How does Mac Taylor sleep at night? He’s a civic arsonist.

I groused about it in this U-T San Diego editorial:

“Imagine a family in which both parents work and make $100,000 a year between them but have $300,000 in steadily growing credit-card debt. If the parents got raises and their income increased to $110,000 a year, would you say the family is suddenly in good shape financially? Of course not.

“But that sort of happy talk is just what we’re hearing from state leaders after an upbeat report from the Legislative Analyst’s Office predicted a coming era of budget surpluses because of revenue from tax hikes and a surge in capital-gains tax receipts, thanks to Wall Street’s latest boom.

“The 62-page report mentions the state’s massive unfunded liabilities for the California Public Employees’ Retirement System and the California State Teachers’ Retirement System only briefly.”

Reporters don’t connect budget happy talk with pension gloom

What’s amazing is that the same Sacramento reporters who have covered Gov. Jerry Brown’s efforts to win pension reform don’t connect the dots. If Brown says pension benefits are a toxic, long-term, unaffordable fiscal nightmare, how can that be squared with Mac Taylor’s fiscal happy talk? It can’t be.

Here’s Mac:

“We now find that California’s state budget situation is even more promising than we projected one year ago. The state’s budgetary condition is stronger than at any point in the past decade.”

Here’s me:

“As of September, CalPERS had about $260 billion in assets and about $340 billion in liabilities. Those numbers are based on CalPERS’ assumption that decades of investment returns will average 7.5 percent annual growth.

“But a comprehensive 2011 study overseen by Joe Nation, a professor at the Stanford Institute for Economic Policy Research and a former Democratic state lawmaker, concluded assumptions of 5 percent to 6 percent are more historically appropriate. In September, Nation said a more realistic assessment of CalPERS’ current unfunded liability is $170 billion — not $80 billion. …

“The Legislative Analyst’s Office’s report simply doesn’t contemplate what state budgets would look like in coming years if they addressed and paid down the state’s share of CalPERS’ unfunded liability. Instead, it only predicts a slow growth in annual contributions to $2.8 billion by 2019-20 — meaning the total unfunded liability will continue to grow by billions each year.”

In even worse shape than CalPERS: CalSTRS

“CalSTRS is in even worse shape than CalPERS. The state teachers’ pension system reports assets of $172 billion and an unfunded liability of $70 billion. But it too uses the 7.5 percent projection for investment returns. Even with that questionable assumption, CalSTRS is on track to run out of funds in 2043. If Nation’s more prudent model were followed, CalSTRS’ unfunded liability would double, and it would run out of funds long before 2043.

“Once again, the LAO report doesn’t contemplate what state budgets would look like in coming years if they addressed and paid down CalSTRS’ unfunded liability. Even if the optimistic 7.5 percent earnings estimate is used, it’s been estimated that CalSTRS needs $4.5 billion a year for 30 years to dig out of its financial hole. Yet the LAO only predicts a slow increase of state funding to $1.8 billion in 2019-2020.”

I have whined an awful lot about the state media in recent months. They keep giving me fresh fodder.

How can reporters covering Sacramento not realize that they can’t simultaneously believe that the state government is in good shape fiscally and that it faces an enormous long-term crisis in paying for unfunded retirement benefits?

It’s truly bizarre, because this isn’t a case like fracking or AB 32 where there’s a green agenda driving coverage. Instead, it’s just the laziest pack journalism imaginable.

By Chris Reed

In November, to the amazement of many journalists who have admired the independence and thoughtfulness of the Legislative Analyst’s Office over the years, LAO boss Mac Taylor gave an amazingly sunny take on the state of California’s finances. Here’s what I wrote about Taylor’s happy talk at the time:

“The LAO predicts there will be a budget shortfall of $1.9 billion that has to be covered during the remainder of this fiscal year and in 2013-14. After that, the analysis predicts that a recovering economy – and continued state spending restraint — means there is a ‘strong possibility of multibillion-dollar operating surpluses within a few years,’ even after the expiration of the temporary sales tax hike approved last week by state voters.

“Given the Legislature’s history of quickly spending surpluses instead of banking them for a rainy day, we find the idea that there is a ‘strong possibility’ of multiple years of surpluses to be detached from reality. Besides the Pollyannaish quality of that assessment, we note that other budget analyses … are far gloomier.”

I cited several negative factors. Here are some:

“• The likelihood of major cuts in defense spending in coming years as the federal government strives to end trillion-dollar annual deficits.  …

“• The prospect that the broad switch to cleaner-but-costlier energy mandated by AB 32 will drive heavy industries from the state and make California’s exports less cost-competitive.

“• The heavy costs of implementing President Obama’s health care overhaul going forward as federal subsidies diminish and as Medi-Cal patients explode in number – just as many of the state’s family doctors near retirement. The California Academy of Family Physicians says 30 percent of primary-care physicians are 60 or older, the highest percentage of any state.

“• The cost of paying for pensions and health care for a steadily growing army of public employee retirees. A 2010 Stanford study that avoided rosy return scenarios puts the total unfunded pension liability at $500 billion; LAO accepts the rosy scenarios.”

Now the LAO has come out with a report that shows how dire that last factor is likely to be.

“The pension fund for California teachers and school employees will run out of money by 2044 if lawmakers don’t take drastic action, according to a new report from the Legislative Analyst’s Office.

“The report said problems with the pension fund, known as CalSTRS, ‘may be state’s most difficult fiscal challenge.’

“The costs are massive and growing. The latest estimate pegs the fund’s unfunded liability at $73 billion as of June 2012, up from $64.5 billion the year before.

“‘This is more costly the longer we wait,’ said Ryan Miller of the Legislative Analyst’s Office during a hearing Wednesday.”

Hey, Ryan Miller: Can you have a talk with your boss? Can you tell him that his November report is completely undermined by your report?

I truly believe that Mac Taylor’s November 2012 remarks will haunt him for as long as he is a public figure. Sure, Jerry Brown has made progress on the state’s fiscal chaos. But for a respected watchdog to say that California is on the brink of an era of budget surpluses? OMG, as the kids say.

What a crock, I say.