California Public Pension Debt Soars to $1.4 Trillion in 2016, Up 45% in Just Two Years

In the past two years, as of November, 2016, the unfunded liability of CalPERS has gone up 45%.  Just in the past year, in raw dollars, it went from $991 billion to $1.4 trillion.  Why?  Because the agency instead of receiving 7.5% return on investment, it had under 1%.  Plus, the agency is investing based on political correctness—firms that are not “nice—tobacco, some banks, oil companies, those dealing with Israel, etc. are not eligible for new investment—and in some cases they have divested stocks.

“The total market value of public employee pension debt in the State of California now stands at $106,848 per household, according to Stanford University’s Pension Tracker database (www.pensiontracker.org).

Perhaps more remarkable is the recent rapid acceleration in the debt from just two years ago.  In 2014, California’s total pension debt was calculated at about $950 billion but poor investment returns and a “stay the course” attitude among most public agencies have caused the debt to soar to an estimated $1.4 trillion in 2016–a 45% increase in just two years.

The calculations from Pension Tracker are based on actual numbers obtained from all of the state’s public pension systems but reject the false assumption used by public agencies which assume a 7.5% annual rate of return on investments.”

In July, CalPERS is going to raise the mandatory contributions from cities and counties—just to keep the system going.  That means your city will cut library hours, safety personnel and basic services to keep this collapsing system alive.  Why did we have so many tax increases on the ballot in November?  So government could pay for the pensions.

California Public Pension Debt Soars to $1.4 Trillion in 2016, Up 45% in Just Two Years

by David Kersten, Kersten Institute,  12/8/16

New figures just released by Stanford University show that the market value of public employee pension debt in the State of California has climbed to $1.4 trillion as of November 2016, up 45% from just two years ago.

The total market value of public employee pension debt in the State of California now stands at $106,848 per household, according to Stanford University’s Pension Tracker database (www.pensiontracker.org).

Perhaps more remarkable is the recent rapid acceleration in the debt from just two years ago.  In 2014, California’s total pension debt was calculated at about $950 billion but poor investment returns and a “stay the course” attitude among most public agencies have caused the debt to soar to an estimated $1.4 trillion in 2016–a 45% increase in just two years.

The calculations from Pension Tracker are based on actual numbers obtained from all of the state’s public pension systems but reject the false assumption used by public agencies which assume a 7.5% annual rate of return on investments.

Stanford University experts use the same market rate figures that the California State Public Employeess’ Retirement System (CalPERS) uses to calculate the market value of its pension debt.

Project director Joe Nation, Ph.D. says he believes that this is a more accurate figures because it is based on a 20-year treasury rate, as oppose to fictionary and outdated assumptions used by government agencies.

Nearly every financial expert in the country agrees that a 7.5% assumed rate of return is completely out of line with what one can expect from the market over the next 10 or 20 years.

Most California politicians deny that there is a public pension problem because they receive subtantial funding from the state’s public employee unions who are holding the line on any type of substantive pension reform which would reduce their substantial pension benefits.

The Los Angeles Times, California Public Radio and others have produced recent investigative reports which argue that California politicians have misled the public about the pension problem and that in fact their exists a dire need for real pension reform.

Similarly, Calpers is also controlled by the state’s public employee unions and is expected to consider a symbolic lowering of the unrealistic 7.5% investment return to 7.25% or something similiar to try to fend off pension reform critics and objective experts in public finance.

Nation, who comes from a family of public employees himself and formerly served in the California Assembly, says he does not believe that the state will be able to cover these debts without significant tax increases, but that pension reform is necessary to reduce the extremely costly level of public pension benefits awarded to public employees in the State of Caliornia.

Nation says public employee debt from retired employee health care and other post employment benefit obligations (OPEB) is estimated to total another $300 billion in unfunded liabilities. OPEB figures will be added to Pension Tracker at a future date.

Thus, the State of California’s total unfunded public employee benefit debt is estimated to be about $1.7 trillion in 2016, on pace to exceed total annual economic activity in the state (Gross GDP) in a few years, which totaled $2.4 trillion in 2014.

The state’s total annual General Fund revenues equalled about $125 billion in 2016-17, which means that it would take the State of California more than 14 years to retire its public employee pension debt even if it diverted all state tax revenues to paying down the debt.

Public bankruptcy could be an option, but thus far there is not a precedent for a U.S. state filing for bankruptcy protection. Several California localities, such as the cities of Vallejo, Stockton, San Bernardino, have filed for bankruptcy protection due to unaffordable public employee pension debt.

For more information please visit:  www.pensiontracker.org or to stay up to date subscribe to the Pension Tracker Facebook page at: https://www.facebook.com/Pension-Tracker-946998268668447/   

Below is a screencast, explaining the new Stanford data.