California Has The Perfect Storm Brewing In Pensions

Posted By on October 21, 2010

Why California is About to Fall Into an Ocean of Unpayable Debt

Perry Wong, Director of Regional Economics at the Milken Institute is co-author of a new report,  Addressing California’s Pension Shortfalls: The Role of Demographics in Designing Solutions.   His conclusion:

We’re talking about a perfect storm: more state services needed for an aging population, a workforce that will spend more years in retirement than they did contributing to the funds, and a smaller ratio of working-age taxpayers and contributing state workers to pay for it all.

Some of the key findings in the report include:

• By around 2012 or 2013, the three major state pensions’ obligations will be more than five times as large as total state tax revenue.

• Not only will California’s growing senior population depend on Medi-Cal and other state services, but public school enrollment is likely to rise in the coming years. The state can ill afford to fund pensions by cutting back on these services.

• In 2009, the pension liability came out to $3,000 per working-age adult in the state. By 2014, it will triple to over $10,000 per working-age Californian.

• Raising employee contributions alone will be less effective over time as the ratio of actively contributing members to benefit recipients continues to decrease.

• Currently, the average state employee contributes to the system for 25 years, but will receive benefits for 26 years and the number of benefit-receiving years is increasing as longevity improve

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