Posted By thestatedtruth.com on March 31, 2010

From The Wall Street Journal:

At the root of governments’ problems today are promises made in past decades. As a group, state and local governments have promised an estimated $3.35 trillion in pension and health-care benefits to be paid over the next three decades, but are estimated to have 70% of the money to cover those payments, according to the Pew Center on the States. Pension and health costs can consume 20% of city and state budgets.

California offers a view of the fallout. The state’s largest pension fund, the California Public Employees’ Retirement System, known as Calpers, is estimated to be only 57% to 65% funded. Having suffered investment losses in recent years, the state has had to dip deeper into its revenues to make up the funding gap. Last year, a budget impasse forced the state to issue IOUs for taxpayer refunds.

It wasn’t long ago that California was going the other way, based on a different set of assumptions. In 1999, the state’s Democratic-controlled legislature and then-governor Gray Davis passed a law expanding benefits for many state employees. A proposal prepared by Calpers—the $200 billion fund that manages money for 1.6 million of the state’s employees, retirees and their beneficiaries—forecast that the boosted benefits would be paid for entirely by investment gains. “There are only two ways you can have this problem: One, the promised benefits are too big, or two, not enough money was put away,” says David Crane, special adviser for Gov. Arnold Schwarzenegger.

California’s contribution to its public-employee pension fund is projected at $3.5 billion in the fiscal year starting July 2010, 4% of the state’s general-fund budget, the highest proportion in state history.

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