California to Pay Billions More After Calpers Cuts Assumed Rate

In March, April and May the people of California are going to understand the pension crisis.  Currently the unfunded liability if $1.4 trillion, up 45% in just two years.  It will go up even more next year—unless President Trump is very successful and gets us out of the Obama economy.  Otherwise your city is going to have its CalPERS mandatory contributions go up by double digits.  To accomplish this, cops will not be hired, potholes not fixed and taxes will have to go up.

“California will be forced to pay billions more in pension contributions for government employees after the state retirement system’s decision to lower its assumed rate of return.

California is already paying $5.38 billion to the California Public Employees’ Retirement System this year, and in fiscal year 2018 the state will need to add at least $200 million more. By fiscal year 2024 the annual tab will increase at least $2 billion from current levels. This all comes on top of increases already scheduled under the system, according to Governor Jerry Brown’s finance department.”

Add to that the minimum wage increase and health care costs going up—your city may already be on the cusp of bankruptcy.  The City of Simi Valley last year passed a “balanced Budget”.  It later came out through Councilman Becerra that balanced in the case of Simi Valley means a $ million operational deficit.  We can not afford more balanced budgets like that and CalPERS is going to put many towns over the edge.

WhiteHouseMoney

California to Pay Billions More After Calpers Cuts Assumed Rate

By Romy Varghese, Bloomberg,  12/23/16

  • State will pay $2 billion in higher pension costs by 2024
  • Calpers voted to cut target to 7 percent over three years

California will be forced to pay billions more in pension contributions for government employees after the state retirement system’s decision to lower its assumed rate of return.

California is already paying $5.38 billion to the California Public Employees’ Retirement System this year, and in fiscal year 2018 the state will need to add at least $200 million more. By fiscal year 2024 the annual tab will increase at least $2 billion from current levels. This all comes on top of increases already scheduled under the system, according to Governor Jerry Brown’s finance department.

As fixed costs take up a greater portion of the state’s resources, new programs may become more difficult to bankroll. The state is already committed to a progressive minimum wage increase that will cost it $3.6 billion after it reaches $15 an hour in January 2022 and to pay more in matching funds for Medicaid.

While it’s prudent, the lower investment return goal makes California “fiscally more vulnerable” if there’s an economic downturn, said Gabriel Petek, an analyst at S&P Global Ratings in San Francisco. “It’s putting more of an element of risk in the state’s fiscal structure.”

H.D. Palmer, a spokesman for the finance department, said that if left unchecked, unfunded obligations could crowd out spending in areas such as education and health-care. Brown on Wednesday hailed the lower investment return target as making the system “more sustainable.”

“It clearly involves additional costs to the state that are significant,” Palmer said. “We’re prepared to incur these costs because the governor has made recognizing and paying down the state’s long-term debt and liabilities a priority.”

California’s revenue is volatile because it draws a large share of taxes from wealthy residents whose incomes are tied closely to the stock market. The top 1 percent of earners — who tend to own shares — accounted for nearly half of the state’s personal income-tax collections in 2014. Voters in November approved a 12-year extension of higher income tax rates on the rich, deepening the reliance on their fortunes.

California stands to benefit from the market’s strong showing, with the S&P 500 Index up 10.62 percent year-to-date. During 2000-2015 the index returned an average of 3.77 percent annually, according to data compiled by Bloomberg.

About Stephen Frank

Stephen Frank is the publisher and editor of California Political News and Views. He speaks all over California and appears as a guest on several radio shows each week. He has also served as a guest host on radio talk shows. He is a fulltime political consultant.