By Dale Kasler
Published: Tuesday, Oct. 18, 2011 – 12:00 am | Page 1A
Last Modified: Tuesday, Oct. 18, 2011 – 7:55 am

California’s big public pension funds are already short tens of billions of dollars. An organization of accountants is about to make the picture look even worse.

A proposed change to pension accounting standards could give more ammunition to conservatives seeking to reduce pension benefits for public sector workers. Gov. Jerry Brown is expected to issue a wide-ranging proposal to overhaul pensions sometime soon.

As Brown and the Legislature prepare to wrestle over pension costs, an organization that sets the industry standards for how government finances are reported, the Governmental Accounting Standards Board, is proposing new rules for calculating pension fund liabilities – the amount of money such funds owe retirees.

The proposal wouldn’t have much effect on CalPERS, the nation’s largest public pension fund. But it would have an enormous impact on the second largest public fund, CalSTRS.

The California State Teachers’ Retirement System already faces a funding gap of $56 billion – the difference between the money it expects to have on hand over the next 30 years and what it will need to pay out in benefits during the same period.

The accountants’ proposal would triple the gap – on paper – to around $150 billion, said Ed Derman, deputy chief executive officer at CalSTRS.

“It complicates things,” Derman said. “People are going to see this other number … and they’re going to say, ‘Oh my gosh, it’s a much bigger problem.’ ”

Derman said CalSTRS’ financial problem won’t actually worsen. It will just look worse to accountants – and maybe elected officials. That could complicate CalSTRS’ efforts to plug its funding gap.

Public pensions and their cost to taxpayers have emerged as a hot-button political issue since the market crash of 2008 greatly reduced pension fund assets. CalPERS responded by raising state contributions, which it has the legal right to do. CalSTRS, however, is legally required to get approval from the Legislature for higher taxpayer contributions to teacher pensions.

With the state budget already in dire shape, the teachers’ pension fund has hesitated to broach the issue aggressively, although it has been quietly lobbying lawmakers for about two years.

Today, CalSTRS gets about $6 billion a year combined from the state, school districts and teachers.

It believes it needs about $4.1 billion more each year or it will run out of money in a little more than 30 years. If that were to happen, the state would be responsible for paying benefits to retirees.

“We have to be responsible, to educate the governor and the Legislature,” Derman said.

Even pension funds that will be relatively untouched by the accountants’ proposal are taking notice of the political consequences.

“There’s going to be a perception problem – what is the cost of the pension system?” said Alan Milligan, chief actuary at the California Public Employees’ Retirement System.

The GASB rules also could cause big headaches for the 1,700 school districts that belong to CalSTRS. For the first time, they would have to report a portion of CalSTRS’ funding gap on their own statements – making their finances look worse than they do now.

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