Smoke and Mirrors

By Daniel Borenstein, Staff columnist
Posted: 02/08/2013 12:00:00 PM PST
Updated: 02/09/2013 05:49:07 PM PST

Gov. Jerry Brown’s claim that he balanced his proposed 2013-14 budget ignores that he’s driving the state teacher pension system deeper into debt by shortchanging it at least $4.5 billion.

Teachers will almost certainly receive retirement payments they have earned. It’s our children, the next generation of taxpayers, who will suffer. They will be stuck with an astronomical bill we should be paying now.

Blame state lawmakers, who continue to ignore a crisis that’s been building for a decade. The California State Teachers’ Retirement System, which has warned about the shortfall, will this coming week report to the Legislature that the pension plan is underfunded by $64 billion.

An improving economy will not solve the problem. According to a recently released draft of the report, erasing that debt through investment returns would require 17 percent annual returns for the next five years followed by 7.5 percent each year for a quarter century.

Nor will last year’s much-touted, so-called pension reform provide meaningful help, according to CalSTRS. A forecast that the system will go broke in 2046 has been extended to 2047 thanks to the “landmark” legislation.

CalSTRS’ talk of insolvency stems from its inability to control its destiny. As underfunded as other systems are, they can at least impose a payment plan to eliminate their debts. It’s common to amortize liabilities over 18-30 years and force state and local governments to pay more each year.

But CalSTRS, which serves K-12 school districts and community colleges, lacks the legal authority to raise contribution rates. It must turn to the political arena, to the Legislature and governor, who have thus far done nothing. As a result, the problem has gotten worse.

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