Local governments in California are preparing for a fight. From the LA Times:
Directors of the nation’s largest pension fund could decide early next year whether to firmly ratchet down long-term investment predictions, an action that would come at a substantial cost to state and local governments.
Board members of the California Public Employees Retirement System discussed the issue at length on Tuesday and could cut the “discount rate,” the official projected rate of return on CalPERS investments, as soon as February.
“There’s a need to look at the funding of the system more closely than ever before, to ensure the sustainability of the fund over the long term,” said Cheryl Eason, chief financial officer of CalPERS, during the hearing.
In 2015, California tried to reform CalPERS to address its shortfalls, but they didn’t do nearly enough. The system currently assumes annual returns of 7.5 percent, which is still far too optimistic. So CalPERS plans to revise its expectations downward, which would force governments to kick in more money to meet liabilities. Local government budgets, of course, are already stretched. It isn’t long before they’ll have to ask the state and, potentially, the federal government for a bailout. And with Republicans in control in Washington, it’s hard to imagine California getting any sympathy.
California’s state government has enjoyed finally being back in the black. But with all these pension liabilities coming due, it’s unclear how long the good times will last.