Study: California pensions underfunded by $500 billion
Associated Press Writer and Sun News Service
SACRAMENTO, Calif. and#8212; Californiaand#8217;s public pension funds are underfunded by as much as $500 billion, according to a Stanford University study that was commissioned by Gov. Arnold Schwarzenegger and released this week.
The shortfall could create major financial crisis for the state. And California is not alone: states around the country are facing massive shortfalls in their pension and retiree health care obligations that academics have estimated surpass $3 trillion.
Local entities yearly pay millions into the fund. The Town of Truckee will pay in about $2 million next year, said Administrative Services Director Kim Szczurek.
Truckeeand#8217;s personnel expenses in the general fund are about $10.2 million. Szczurek said as pension costs rise, Truckee will need to look at increasing its employeeand#8217;s payments into the pension fund. The town currently pays all of the employer and employee expenses.
and#8220;Thatand#8217;s something weand#8217;ll have to negotiate with our employees but they know itand#8217;s coming,and#8221; Szczurek said.
The county hasnand#8217;t estimated its pension payments for the upcoming fiscal year yet, but Deputy Executive Officer Joe Christoffel said the county is expecting to pay about $13.5 million into the pension fund this year. The countyand#8217;s total budget is about $185 million.
The City of Grass Valley is estimated to pay more than $1 million into the fund over the 2010-2011 fiscal year, or 3.8 percent of its projected $27.4 million overall budget.
If the pension obligation continues to grow, City Administrator Dan Holler said, it could pose a problem to local government.
and#8220;Ultimately youand#8217;re talking about dollars that arenand#8217;t being put back into services for the community,and#8221; Holler said.
Pension payments make up about 6 percent of Nevada Cityand#8217;s total expenditure, said City Finance Director Catrina Andes. The city expects to pay in about $330,000 in the upcoming fiscal year.
The estimated California shortfall applies to the retirement systems for its state and local government workers, teachers and University of California employees. Together, they serve about 2.6 million retirees.
and#8220;This study reinforces the immediate need to address our staggering pension debt,and#8221; Schwarzenegger said in a statement. and#8220;According to the study, California taxpayers are on the hook for over a half-trillion dollars. Thatand#8217;s nearly six times the size of our entire state budget.and#8221;
Analysts at those retirement funds estimated their unfunded liabilities to be much lower. CalPERS put its unfunded liabilities at $38.6 billion on July 1, 2008, and CalSTRS estimated its own rate at $16.2 billion. The Stanford researchers tallied those unfunded liability figures at $239.7 billion for CalPERS and $156.7 billion for CalSTRS.
The researchers also estimated those figures would be even higher today, because those two funds and the UC retirement fund have lost a combined $109.7 billion since then.
David Crane, an economic adviser to the governor and former CalSTRS board member, explained the difference, saying the stateand#8217;s pension funds have been underreporting the gap between revenue and obligations.
The Stanford researchers used a different mechanism to evaluate the estimated risk and return of the stateand#8217;s investments. Crane backed the formulas used by the Stanford researchers and says recent academic studies have had similar findings about the extent of Californiaand#8217;s pension problem.
and#8220;This more honest reckoning of our pension debt is a stark reminder that our legislature simply must seize the opportunity to reform pensions now,and#8221; Crane said.
Brad Pacheco, chief spokesman for CalPERS, said the study relied on outdated data and didnand#8217;t take into account the gains that the CalPERS portfolio realized in the past year.
and#8220;You canand#8217;t look at these as a snapshot in time,and#8221; Pacheco said. and#8220;We need to be judged by our track record. And over the past 20 years, weand#8217;ve earned an average return of 7.9 percent.and#8221;
Schwarzenegger has called for reforms to the pension benefits offered by the state, such as raising the retirement age for some state workers and lengthening the time it takes to earn retirement health care benefits.
and#8220;The consequences are clear: increasingly large portions of state funding for programs Californians hold dear such as schools, parks and health care will be diverted to pay for this debt,and#8221; Schwarzenegger said.