California's Pensions a ticking time bomb

The L.A. Daily News reports:

California state and local governments are facing liabilities of $118 billion or more over the next 30 years to fund promises of generous health-care benefits for retired public employees, according to a state commission report released Monday.

The findings result from the first comprehensive statewide effort to measure the massive looming liabilities amid growing concern that the debt could bite into government coffers unless officials start setting aside billions of dollars every year.

And the commission, created last year by Gov. Arnold Schwarzenegger, said the growing liabilities mean governments need to begin investing now to build up a permanent fund rather than simply paying out of pocket every year.

"I think the worst case is that our children and grandchildren will be saddled with this bill," said commission Chairman Gerald Parsky.

"If the policymakers don't feel that it's the highest priority, then they have to accept the fact that at some point in the future, it's going to impact the ability to provide other services, other things that may be beneficial to the state, to the next generation."

But while financial experts agree that prefunding retiree health benefits is prudent, such a move would mean taking more money out of current budgets even as the state is facing a fiscal crisis.

Schwarzenegger is expected to declare a fiscal emergency this week to deal with a $14 billion budget deficit.


And prefunding would mean short-term cuts in the next few years to basic government services ranging from police officers to pothole repairs.

For state government alone, prefunding would cost $1.23 billion the first year, in addition to the $1.36 billion per year actually going to fund current-year retiree health benefits.

State government is facing a total liability of about $48 billion out of that $118 billion total.

Los Angeles County's costs for retiree health care have nearly tripled in the past decade, soaring from $100 million in 1997-98 to about $366 million this year. The county's long-term liability over the next 30 years is estimated at $13 billion to $20 billion.

Jim Adams, the county's senior manager of employee relations, said the county is studying prefunding.

"This is a big deal," Adams said. "All the answers are not there yet, but we're working on them. The unions are being very collaborative in trying to come up with some answers to mitigate this problem we have. There aren't any easy answers."

Parsky said an annual total prefunding figure for local government agencies cannot be easily determined because different agencies are facing unique financial situations with different benefit formulas.

But critics attacked the commission report, noting that it avoided tackling some of the most controversial issues facing the state's pension and benefits systems and failed to propose significant solutions.

Former Assemblyman Keith Richman, who has formed a foundation to help address the state's pension and benefits problems, said the commission failed to even consider strong reform measures - such as revising pension formulas or raising the ages of retirement for public-safety officers.

Under current limits, public-safety officers can now retire at age 50 with pensions higher than their salaries.

They sure are special.