January 29, 2019
By Assemblyman Vince Fong
A promise is a promise, no matter how large or small. If I promise to pay back $10 that my friend loans me, the responsible thing to do is to make sure I can actually pay back the loan. Right now, California may not be able to keep their promise — the state’s pension liability is currently a staggering $250 billion (our entire state budget is $200 billion). This does not include the promises that local governments made to its future pensioners, which combined with the state’s pension liability, amounts to an incredible $1 trillion. If we do not deal with this behemoth financial problem, our state will face some dire consequences, jeopardizing our economic health.
The California Pension Retirement System (CalPERS) is currently 66% funded for all obligations to future retirees. This means that there is no money in the bank for approximately 34% of the future retirement costs of public employees in California. If we continue to ignore the problem and let the funding gap increase, it will require increased contributions from the state and local governments to make up for the shortfall, which means less funding for critical services like classroom education and public safety.
Local cities and counties are the largest contributors to the CalPERS pension fund. Each department in local government, such as your trash collection service, adds money into CalPERS for its employee’s retirement. Many cities will need to contribute more and more of their budget to CalPERS to help make up for its shortfall. As the gap between the pension’s funding and its obligations to retirees grows, this burden will only increase.
The Governor in his January budget proposal put $7 billion towards this shortfall. However, while needed, it is a small drop when compared to the enormity of the debt.
We need a thoughtful approach to addressing the pension liability we are facing. The slightest economic slowdown or downturn will expose our state’s liability in a devastating way. We saw a recent example when Los Angeles Unified School District teachers went on strike, which was in large part due to LAUSD trying to manage their enormous pension obligations.
We need to address the issue head on in order to responsibly manage our state and local finances and ensure that we keep our pension promises. This is what fiscal responsibility demands to protect every Californian.