California’s official balance sheet is in much worse shape this year than last year—and that’s a good thing. For many years, the Golden State, like many others, has hidden the scale of its unfunded pension liabilities from plain view using accounting gimmicks. But thanks to new budgeting rules, the state government is now required to put everything on the table. The Sacramento Bee reports:
Although its 2014-15 budget was balanced, California’s state government ended the fiscal year $175.1 billion in the red, thanks largely to state retirement obligations that had to be included in its balance sheet for the first time.Under new rules by the Governmental Accounting Standards Board, state and local governments must list unfunded pension liabilities as debts alongside the more traditional bonds and other forms of debt.Counties and other local governments have been rolling out their annual financial reports this year, some showing multibillion-dollar deficits for pension obligations, so the state’s report was not unexpected.
The practice of pretending that pension obligations aren’t as real or pressing as other forms of debt has encouraged many state and local governments to make promises to public employees that they could never realistically keep, helping to create the dire fiscal situation many find themselves in today. So we applaud California for making this change, which will increase pressure on policymakers to balance their books, and we’re pleased to see that there is some movement in Congress to require other states to take similar steps. Simply acknowledging the problem won’t fix it—there is no shortage of tough political choices to be made ahead—but it is, as they say, an essential first step.