Debt

By Melody Gutierrez
February 6, 2016
Updated: February 6, 2016 – 2:53pm

SACRAMENTO — California has come a long way to dig itself out of budget deficits, but the state remains on shaky ground due to nearly $400 billion in unfunded liabilities and debt from public pensions, retiree health care and bonds, financial analysts say.

“Yes, the state’s budget is balanced if you are looking at what they are required to spend cash on this year, but not when you look at their expenses,” said Gabe Petek, a credit analyst with Standard & Poor’s.

The high debt and unfunded liabilities have resulted in the state’s rating lagging behind other states, Petek says. California saw its bond rating rise last year from A+ to AA-, the highest level the state has had in 14 years. Good bond ratings are a sign of a strong budget and financial management and allow states to pay lower interest rates when selling bonds.

“Compared to other states, though, California has one of the lower ratings,” Petek said.

And the reason is clear, he said. It’s California’s debt and liabilities that are concerning financial analysts, particularly the state’s rapidly growing unfunded retiree health care costs, which grew more than 80 percent over the past decade. California has promised $74 billion more in health and dental benefits to current and retired state workers than the state has put aside.

Major liabilities

Without changes, the state estimates that unfunded liability would grow to $300 billion by 2047.

“These liabilities are so massive that it is tempting to ignore them,” Gov. Jerry Brown said last month in his State of the State speech. “We can’t possibly pay them off in a year or two or even 10. And there is little satisfaction in the notion of chipping away at an obligation for three decades to pay for something that has already been promised. Yet, it is our moral obligation to do so — particularly before we make new commitments.”

H.D. Palmer, spokesman for the Department of Finance, said the governor is focused this year on reining in retiree health care costs. The retirement plan is one of the most generous in the nation, covering 100 percent of retirees’ medical costs if they worked for the state for 20 years. Currently, the state pays only for the cost of providing care to retired workers, and does not put money aside for those who will retire in the future.

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