By Chuck Reed

Special commentary for the California State Treasurer's publication, 'Intersections.'

California’s economy is looking up. The unemployment rate is down and most industrial sectors are growing. Yet, even in these good times, governments statewide are raising taxes and fees, boosting tuition and cutting services, all in order to pay for rising retirement costs.

Between 2003 and 2013, annual pension costs for California governments jumped from $6.4 billion to $17.5 billion, and are still rising. The California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS) agencies are absorbing massive increases in contributions.

The state controller reports more than $240 billion in unfunded liabilities for state and local pension obligations. California Common Sense, a non-partisan policy group, calculates nearly $160 billion of unfunded liabilities for retiree health care obligations. This $400 billion in retirement debt is driving massive cost increases, which in turn are driving cuts in services and tax increases.

Without reform, California faces a future of higher taxes and fewer services. Some local governments already face service delivery insolvency and bankruptcy. More will join them in the next recession, and public employees, retirees, residents and taxpayers will suffer, as they did in Vallejo, Stockton and San Bernardino.

CalPERS and other opponents of pension reform tell us not to worry because over 20 years (1994-2014) CalPERS has earned more than 7.5 percent per year on its investments. But look at what happened to the CalPERS unfunded liabilities during that time: Unfunded liabilities grew by more than 150% per year. According to its Comprehensive Annual Financial Reports, the CalPERS’ unfunded liability grew from $3 billion to $93 billion in the same 20-year period. So when CalPERS tells you not to worry, you should think twice.

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