Pension Reform

Associated Press
Posted: 01/18/2016 – 10:51:49 PM PST
Updated: 01/18/2016 – 10:52:19 PM PST

SACRAMENTO — The California budget that Gov. Jerry Brown proposed this month marks a shocking financial turnaround for a state that just a few years ago faced a $26 billion deficit.

But even as the governor and lawmakers debate how to spend a budget surplus, there’s a looming financial hurdle: Unfunded pension and health care liabilities of $220 billion for future retirees who work for the state and the University of California system.

As the Brown administration prepares to enter labor talks this year, the governor is seeking changes to help the state cut future costs, warning there’s “a serious long-term liability.”

Over the past four years, the Legislature moved to improve the financial outlook for the state’s largest public employee pension systems, the California Public Employees Retirement System and the California State Teachers Retirement System. Brown is now setting his sights on a rapidly growing retiree expense, health care. He’s asking workers to pay more to fund those benefits.

Reform advocates warn that failing to address unfunded liabilities will ultimately require higher taxes or cuts in other government services so the state can pay for its obligations to retired workers.

“They’re very big, bigger than ever, and the cost is very high,” said David Crane, a Stanford public policy professor who was an adviser to former Gov. Arnold Schwarzenegger.

The state has promised an estimated $72 million in health care benefits for its current and future retirees, an amount that will increase to more than $300 billion over the next three decades, according to the governor’s Department of Finance.

The bill for retiree health care has historically been paid year-by-year, about $2 billion in the proposed 2016-17 budget. Brown proposes prefunding benefits similar to the way the state pays for pensions — by paying into a trust fund that accrues investment returns over time, reducing the amount of money that taxpayers must contribute in the future.

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