Looks Like A King Sized Tooth Ace For California’s Unfunded Pension Liabilities

Posted By on May 24, 2010

Unfortunately, our woeful tale of unfunded liabilities does not end in Washington. Several state governments are also racking up large annual deficits and even larger unfunded pension liabilities. Right here at home, in the Golden State, government finances have rapidly slipped from “okay” to “abysmal.”

California State Pension Budget

And once again, the official debt numbers tell only a small part of the story. According to a study by the Stanford Institute for Economic Policy Research, California’s pension shortfall is nearly 10 times worse than the official estimate of $56 billion.

The Stanford study examined the California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System (CalSTRS) and the University of California’s Retirement System (UCRS). According to the Stanford researchers, California’s pension shortfall is not $56 billion; it is $535 billion.

Why the $479 billion discrepancy between these two calculations? One number is pure fantasy; the other is a reasonable guess. When calculating their future liabilities, the California pension systems assume annualized investment returns of 7.5 to 8 percent. The Stanford team, by contrast, ratcheted down those return expectations to 4.14% – a number that much more closely resembles both current realities in the financial markets and the pension funds’ recent, historic returns.

Based on the 4.14% rate, the Stanford team calculated the combined funding shortfall of CalPERS, CalSTRS, and UCRS prior to the 2008/2009 recession to be $425.2 billion. However, the research team reported, “Due to the $109.7 billion loss the three funds collectively sustained [in the most recent fiscal year], we estimate the current shortfall at more than half a trillion dollars.”

What will become of these debts and liabilities? How can we Americans (and Californians) possibly finance them? Most politicians in the land still pretend that America’s massive construct of debt-financed services and promises is viable.


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