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California Teacher Pensions $56 Billion Short

From the Associated Press, via the Silicon Valley’s

SACRAMENTO — The state auditor’s office on Thursday added teacher pensions to the list of high-risk issues facing California government.

The report by State Auditor Elaine Howle added the nation’s largest teacher pension fund because it can’t meet the costs of retirement benefits beyond the next 30 years. The pension funding problem was added to a list of risks that includes California’s chronic budget deficit, unfunded retiree health costs and prison crowding.

It’s a well-known problem. The California State Teachers’ Retirement System reported in March that it had 71 percent of the assets needed to cover retirement costs for its 852,000 members and family members. The estimated shortfall is $56 billion.

Perhaps the Chinese will bail them out.

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  • Kenny

    Maybe the Fed will buy CA bonds at low interest rates.

    It’s just anohter way of expanding the money supply and bailing out the squanderers and imprudent at the cost of prudent states.

  • Richard F. Miller

    Unfunded liabilities are debt; unlike mortgages, such liabilities are unsecured debts, the generic weakling of bankruptcy priorities.

    Considering your earlier Carlyle quotation on Nature and Bankruptcy, and assuming that in general, the bankruptcy priorities of the U.S. Code also reflect “natural” priorities [e.g., if possession is 9/10s of both the law of man and of nature, then a creditor’s perfected security interest is a close analogy to possession], then, no matter how much political to-ing and fro-ing intervenes, ultimately, Calpers will be forced to do the following:

    1. Calculate current cash flow net of operating expenses and distributions; then,
    2. Maximize its net cash flow [e.g., by dunning members for increased dues, contributions, & etc]; then,
    3. Discount this new net cash flow over a period coterminous with Calpers’ liabilities; then,
    4. Project what amount of liabilities this expanded net cash flow can support; finally,
    5. Scale back future (and current) benefits in line with cash flow.

    This process is the heart of deleveraging.

    If Obama, the Democrats and the pre-Tea Party Republicans failed to grasp anything after world markets imposed the first round (2007-2009) of involuntary deleveraging, it was that a window had opened for voluntary deleveraging. Because the leadership classes failed to grasp that, the world is now poised for Involuntary Leveraging, the Sequel.

    The political and social ramifications of all this are Einsteinian but at bottom, the arithmetic is straightforward: there’s not enough world income to service world debt; ultimately, world debt will decrease to a point of equilibrium with world income.

    And to borrow a phrase from the Bankruptcy Code, the excess will be “crammed down.”

    We best get on with it.

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