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California Pension Costs May Double Overnight


California Governor Jerry Brown’s decision not to spend the state’s surplus on new programs is looking smarter by the day, as the state’s pensions crisis is even uglier than official numbers have indicated. Both Moody’s and the Government Accounting Standards Board have spent the past few months making changes to the way local governments report their pension liabilities. Under the new standards, California’s municipal pension liabilities rise from $128.3 billion to $328.6 billion, while the funded level of its pensions programs drops precipitously, from 82 percent to 64 percent.

Now Los Angeles, San Francisco, and San Jose—three of the four largest cities in the state—have landed on Moody’s shortlist for potential downgrades, which will increase their borrowing costs and make it more difficult to pay for these “new” expenses. FoxBusiness reports:

The GASB rules will force state and local governments to stop burying their pension costs in their financials, and show investors upfront what they owe.

The new rules would also require governments to report more realistic, lower expected rates of returns on their pension assets, instead of the often overstated returns they now use to paper over holes in their plans blown out by bad investments, among other things….

The funded status of Los Angeles’ three retiree plans would drop dramatically under the new rules. Los Angeles’ combined plans would fall from 77% funded to 50% funded, SBS found. The city says it has $31.8 billion in combined assets for all its plans, and that it owes $41.1 billion in benefits for its government workers. But under the new methodology, the city would owe about $23 billion more to retirees not backed by assets, SBS says.

For years, states and cities had been hiding the true cost of their generous pension programs. Now that they’ve been stripped of their accounting gimmicks, the true cost of these unviable programs is becoming clear.

This is not what a comeback looks like.

[California seal image courtesy of Shutterstock]

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  • ljgude

    I know enough about economics to be concerned about both state and national financial overextension. I think we are in uncharted deficit spending territory. I call it cocaine Keynesianism because the feds are freebasing bonds and the states have made impossible promises. The only thing I see to pay for it is shale oil and gas, but I am afraid there will be a point where the system stalls. Mayhap, by the even more structurally vulnerable EU. I’m holding my breath.

  • Alexander Scipio

    Those not living in CA who dismiss this report as irrelevant to you may want to rethink. Deep blue CA absolutely will call on Congress & the prez for a fed bailout. Which will be followed by IL and other Blue states. Red states are in for a shock when their taxpayers find out they’ll be paying for programs they have rejected in their states just because Blue states are too big for the Senate & Congress to ignore.

  • lukelea

    How the Supremes rule on gay marriage will be their most important ruling this go around. My guess is that they will leave it up to the people acting through their elected representatives rather than making it a constitutional right. Or maybe that’s just wishful thinking.

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