New Study Reveals California Pension Debt to be Massive

A recent study performed by researchers at Standford University revealed that California’s pension debt is markedly higher than once thought. The researchers calculated the deficit using two different sets of data, and came up with equally staggering amount.

The Sacramento Bee has more on the research:

California’s state and local governments face billions of dollars in debt – the official term is “unfunded liabilities” – for employee pensions not now covered by pension fund assets.

But how many billions?

It could be about $300 billion, according to new calculations by Stanford University researchers, but that assumes that projections of future investment earnings used by pension trust funds, around 7.5 percent a year, are accurate.

Or the debt could be three-plus times as much, close to $1 trillion, if the earnings assumptions track federal treasury notes, according to Pension Tracker, a research project headed by former Democratic Assemblyman Joe Nation.

If nothing else, the newly released Pension Tracker data demonstrate that an earnings assumption – the “discount rate” – is the most important factor in judging whether pension debt can be reasonably managed, or a crisis that could drive government agencies into insolvency.

Three cities have been forced into bankruptcy, largely due to soaring pension costs, and others are feeling the pinch as costs rise.

The tendency among California politicians, both state and local, is to acknowledge that there is debt, but accept the optimistic earnings

[…]

If, in fact, California’s pension debt is closer to $1 trillion than $200 billion, the real-world impact on taxpayers and other public spending will be massive and unsustainable.

But, one might wonder, how does California compare to other states? That’s also covered in the research. It reveals that on the official “actuarial” basis, California’s pension debt is the ninth highest at about $5,100 per Californian, but using the lower discount rate tied to treasury notes, the “market” basis, it’s fourth highest at $25,325 per capita.

For more about where California’s debt stands, read the full article here.