Last week California Governor Jerry Brown proposed to double the state's contribution to the California Public Employees’ Retirement System (CalPERS) to nearly $12 billion in the next fiscal year. The money would come from California’s Surplus Money Investment Fund, or “Rainy Day” fund, and, according to Brown, would reduce CalPERS' unfunded liabilities, saving the state $11 billion over the next several decades.
Although there are varying thoughts and some very good points on Gov. Brown’s remedy, we commend the Governor for tackling California’s pension fiasco head on and trying to find a solution for what at times seems an improbable situation.
CalPERS is more than $111 billion in debt, which means it is $111 billion short of having enough money to pay pension obligations for government workers and retirees, despite massive injections in payments by state and local governments. If left unchecked, it’s projected that California’s contributions to CalPERS will double from $5.8 billion in 2017 to $9.2 billion in 2023.
As RSI Board Leader Chuck Reed has said, the California system is great at promising pensions, but it is a failure at funding those promises, and the result is 17 years of failure by CalPERS. The first domino fell in 1999, when the state legislature granted retroactive pension payments to retirees, and they have continued to fall since with taxpayers left to pick up the pieces. Those falling dominoes have taken CalPERS from a surplus to a pension debt of more than $100 billion in just 17 years.
Sadly, it's not only CalPERS. The California State Teachers’ Retirement System is just as bad. In 1999, CalSTRS also had a surplus. As of 2016, it was in the hole by $96.7 billion.
After 17 years of failure, after 17 years of overpromising pension benefits to government employees and underfunding obligations to pension plans, it’s time to act, as Gov. Brown has done with his latest proposal. This much is clear: CalPERS has had 17 years of failure, and, without action, its debt will only continue to spiral.