California is still in trouble, despite naive reports (CNN: “California’s finances are golden again”) of its surprising fiscal health. When the San Diego Union Tribune, the biggest paper in the city, ran a very short, insightful, mathematically simple editorial, one commenter said the facts presented were “conservative extremist talking points.”
That attitude is sad, and I hope it doesn’t reflect what Democrats in the state (and also across the nation) think. Here is the core of the editorial, which puts the $3 billion surplus in daunting context:
• $87 billion in unfunded liabilities for the California Public Employees’ Retirement System. The $87 billion would be far higher if not for the rosy investment assumptions used by CalPERS.
• $73 billion in unfunded liabilities for the California State Teachers’ Retirement System, a sum that increases a staggering $6 billion a year. The $73 billion would be far higher if not for the rosy investment assumptions by CalSTRS.
• $64 billion in unfunded liabilities for health insurance coverage guaranteed to retired employees.
• $8.2 billion in money borrowed from the federal government to replenish the state’s broke unemployment compensation fund. California only pays the interest on the debt.
Nobody wins if math becomes a public enemy, so it is worth considering WHO sees math as the enemy? Who is really threatening the economic balance of the states? In our book, we ask “Who are the Praetorians?” because it was the Praetorian Guard in Rome that destabilized imperial finances by demanding higher and higher bonuses once they had captured the power to control the Emperor as de facto kingmakers. As this NY Times article makes clear (HT David Henderson), public pensions due to public sector workers and teachers are the main beneficiaries of fantasy budgeting.
And California, which faced a $26 billion deficit two years ago, expects a surplus of between $1.2 billion and $4.4 billion this year, thanks to a combination of tax increases, budget cuts and an improving economy. But it could be erased if the state were to adequately finance its teachers’ pension fund, which says it will need an additional $4.5 billion a year, much of it from the state, to pay the benefits it promised.
“The problems are still there,” said Richard Ravitch, a former lieutenant governor of New York who formed a State Budget Crisis Task Force last year to focus attention on the long-term problems facing states. “It’s retirement expenses, generally, and health care expenses — and they’re crowding out other things.”