Please ensure Javascript is enabled for purposes of website accessibility

Suspect Identified in Ambush Shooting That Killed 2 Idaho Firefighters

6 hours ago

Will Valadao Spoil Trump’s Plan for July 4th ‘Big Beautiful Bill’ Signing?

7 hours ago

Shaver Lake and Reedley 4th of July Shows Are Wednesday. Who Else Is Celebrating?

11 hours ago

Elon Musk Says Senate Bill Would Destroy Jobs and Harm US

11 hours ago

Israel Strikes Pound Gaza, Killing 60, Ahead of US Talks on Ceasefire

12 hours ago

Trump’s Administration Finds Harvard Violated Students’ Civil Rights, WSJ Reports

13 hours ago

How Did the Supreme Court Rule? Here’s a Look at the Big Cases

3 days ago
Walters: California’s Immense Pension Mess
dan_walters
By Dan Walters, CalMatters Commentary
Published 5 years ago on
August 10, 2020

Share

California’s public employee pension dilemma boils down to this: The California Public Employees Retirement System has scarcely two-thirds of the money it needs to pay benefits that state and local governments have promised their workers.

Dan Walters

Opinion

Moreover, CalPERS’ official estimate that it is 70.8% funded is based on an assumption of future investment earnings averaging 7% a year, which probably is at least one or two percentage points too high. In the 2019-20 fiscal year that ended June 30, CalPERS posted a 4.7% return and over the last 20 years it has averaged 5.5% by its own calculation.

Were the earnings assumption dropped to a more realistic level, the system’s “unfunded liability” — essentially a multi-billion-dollar debt — would increase sharply from the current $160 billion to at least $200 billion.

There are three ways to resolve the debt dilemma: Earn higher returns, require government employers and employees to pay more, or reduce future benefits. CalPERS is pursuing the first two but a recent state Supreme Court ruling makes the third virtually impossible.

The court had an opportunity to revisit the “California rule” — an assumption, based on past rulings, that once promised, future pension benefits cannot be revised downward.

CalPERS Has Pursued a More Aggressive Investment Policy

The case involved pension reform legislation sponsored by former Gov. Jerry Brown, particularly a ban on manipulating benefit calculations. Some unions said that the California rule protected “pension spiking,” but the justices, while ruling it doesn’t apply, also declared, “we have no jurisprudential reason to undertake a fundamental reexamination of the rule.”

So reducing future benefits is now off the table, which leaves improving investment earnings and increasing contributions as the only options for avoiding an eventual meltdown.

CalPERS has been pursuing a more aggressive policy, contending that without it, the system can’t achieve its 7% goal. It has proposed to borrow up to $80 billion to expand its investment portfolio and make direct loans to corporations or government entities. However, last week’s abrupt resignation of chief investment officer Ben Meng, architect of the strategy, leaves it in limbo.

Basic economics tell us that pursuing higher investment returns means taking higher risks of failure. Direct lending also increases the risk of corruption, which has infected CalPERS in the past.

That’s why a pending CalPERS-sponsored bill is troublesome. The measure, Assembly Bill 2473, would exempt details of CalPERS loans from the state’s Public Records Act, making it much more difficult for watchdogs and journalists to sniff out insider dealing.

The Bottom Line: The City Is Pawning Its Streets to Pay for Pensions

Meanwhile, CalPERS’ demands for more money from state and local governments are hitting their budgets even harder these days because tax revenues have been eroded by the COVID-19’s recession. They force employers to dip into reserves, shift funds from other services, ask their voters to raise taxes, or even borrow money to pay pension debts.

The latter involves what are called “pension bonds,” issued on an assumption that their interest rates will be less than the 7% rate by which CalPERS inflates unfunded liabilities — a practice known in financial circles as “arbitrage.”

Many local governments issue arbitrage bonds, despite the obvious risks, and recently, a hybrid form emerged in Torrance, a small Southern California city.

Torrance is leasing its city streets to a city-controlled entity called the Torrance Joint Powers Financing Authority, which will issue $350 million in bonds to pay for the lease. The city will use the bond money to pay down the city’s $500 million pension debt while making payments to the authority so it can service the bonds.

The bottom line: The city is pawning its streets to pay for pensions. That’s not healthy by any definition.

CalMatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.

[activecampaign form=19]

RELATED TOPICS:

DON'T MISS

What Are Fresno Real Estate Experts Predicting for 2025 and Beyond?

DON'T MISS

First California EV Mandates Hit Automakers This Year. Most Are Not Even Close

DON'T MISS

Clovis Police Seek Public’s Help in Finding Missing 82-Year-Old Woman

DON'T MISS

Fresno Woman Killed in Head-On Collision, CHP Investigating

DON'T MISS

Musk Vows to Punish Lawmakers Who Back Trump’s Spending Bill

DON'T MISS

Fresno Man Sentenced to Nearly 6 Years for $4.2 Million Tech Startup Fraud

DON'T MISS

Bryan Kohberger Pleads Guilty in Murders of Four Idaho Students, ABC News Reports

DON'T MISS

Wildfire Near Lake Madera Country Estates Burns 12 Acres, Now 100% Contained

DON'T MISS

Fresno County CHP Arrest Two in Interstate 5 Drug, Gun, and Counterfeit Money Bust

DON'T MISS

California Seizes Over 600,000 Pounds of Illegal Fireworks. Newsom Calls for Safe Celebrations

DON'T MISS

Where Trade Talks Stand With Major US Partners Ahead of Tariffs-Hike Deadline

DON'T MISS

Labor Icon Huerta Breaks Ground on Fresno Park Bearing Her Name

UP NEXT

I Detest Netanyahu, but on Some Things He’s Actually Right

UP NEXT

Much of LA’s Community of Immigrants Is Hiding, Leaving a Hole in the Fabric of the City

UP NEXT

Things Netanyahu Might Say if Injected With Truth Serum

UP NEXT

California Politicians Ignore Ag’s Troubles, but Boost Movie Business

UP NEXT

Trump’s Courageous and Correct Decision to Bomb Iran

UP NEXT

How the Attacks on Iran Are Part of a Much Bigger Global Struggle

UP NEXT

Groceries Are Now a Luxury. So Is Breathing.

UP NEXT

California Politicians Agree on School Money, but Poor Test Scores Need Attention

UP NEXT

Sen. Alex Padilla: This Is How an Administration Acts When It’s Afraid

UP NEXT

Bay Area Transit Systems Want More Money. But Their Payrolls Soared as Ridership Declined

Fresno Man Sentenced to Nearly 6 Years for $4.2 Million Tech Startup Fraud

5 hours ago

Bryan Kohberger Pleads Guilty in Murders of Four Idaho Students, ABC News Reports

5 hours ago

Wildfire Near Lake Madera Country Estates Burns 12 Acres, Now 100% Contained

5 hours ago

Fresno County CHP Arrest Two in Interstate 5 Drug, Gun, and Counterfeit Money Bust

5 hours ago

California Seizes Over 600,000 Pounds of Illegal Fireworks. Newsom Calls for Safe Celebrations

5 hours ago

Where Trade Talks Stand With Major US Partners Ahead of Tariffs-Hike Deadline

5 hours ago

Labor Icon Huerta Breaks Ground on Fresno Park Bearing Her Name

5 hours ago

DOJ Announces Arrest, Indictments in North Korean IT Worker Scheme

5 hours ago

Fresno Man Arrested in Clovis for Sex-Related Crimes Against Minor

6 hours ago

Dyer’s Lobbying Works. Fresno Gets $100M for Downtown From State

6 hours ago

Clovis Police Seek Public’s Help in Finding Missing 82-Year-Old Woman

The Clovis Police Department is asking for the public’s help in locating an at-risk missing adult last seen on Thursday. Pathmani Goonawarde...

3 hours ago

Clovis Police are searching for Pathmani Goonawardena, 82, who went missing nearly three weeks ago and was last seen driving a white Volvo near Copper and Auberry, possibly en route to Coarsegold. (CHP)
3 hours ago

Clovis Police Seek Public’s Help in Finding Missing 82-Year-Old Woman

fresno
4 hours ago

Fresno Woman Killed in Head-On Collision, CHP Investigating

President Donald Trump and Elon Musk attend a press conference in the Oval Office of the White House in Washington, D.C., U.S., May 30, 2025. (Reuters File)
4 hours ago

Musk Vows to Punish Lawmakers Who Back Trump’s Spending Bill

5 hours ago

Fresno Man Sentenced to Nearly 6 Years for $4.2 Million Tech Startup Fraud

Bryan Koberger, who is accused of killing four University of Idaho students, listens during a hearing to overturn his grand jury indictment in Moscow, Idaho, U.S., October 26, 2023. (Reuters File)
5 hours ago

Bryan Kohberger Pleads Guilty in Murders of Four Idaho Students, ABC News Reports

The Blanca Fire, burning 12 acres northwest of Lake Madera Country Estates in Madera County, remains active with 0% containment and no reported injuries or structural damage as the cause is under investigation as of Monday, June 30, 2025. (CalFire)
5 hours ago

Wildfire Near Lake Madera Country Estates Burns 12 Acres, Now 100% Contained

Fresno County CHP arrested two on Interstate 5 after finding about one kilogram of suspected cocaine, a loaded ghost gun, and counterfeit money during a vehicle search on Sunday, June 29, 2025. (CHP)
5 hours ago

Fresno County CHP Arrest Two in Interstate 5 Drug, Gun, and Counterfeit Money Bust

Gov. Newsom warns Californians to celebrate the Fourth of July safely, emphasizing zero tolerance for illegal fireworks which have surged to over 600,000 pounds seized this year. (Shutterstock)
5 hours ago

California Seizes Over 600,000 Pounds of Illegal Fireworks. Newsom Calls for Safe Celebrations

Help continue the work that gets you the news that matters most.

Search

Send this to a friend