By Ed Mendel
Monday, September 8, 2014

CalSTRS was bracing to report the nation’s biggest pension debt under new government accounting rules that take effect this fiscal year — $167 billion, an amount so huge some thought it might increase the cost of issuing local school bonds.

But a long-sought rate increase approved by the Legislature and signed by Gov. Brown in the nick of time, a week before the current fiscal year began July 1, will allow CalSTRS to report a debt that is shrinking not ballooning.

Last week the CalSTRS board received a preliminary estimate from Milliman actuaries that drops the new debt report by nearly two-thirds to $59.9 billion. That’s less than the current unfunded liability under the old accounting rules, $73.7 billion.

Jack Ehnes, CalSTRS chief executive officer, said that in “the final moments” the Legislature asked CalSTRS about the impact of passing the funding bill before the new Governmental Accounting Standards Board statement period began on July 1.

“We explained to them that the timing issue has a very significant impact, although it’s not the reason we passed the bill by itself,” Ehnes said.

“But nevertheless, we were facing a $167 billion net pension liability. We were facing the highest net pension liability disclosure in the entire country — there is no doubt about that — prior to July 1.”

While talking to school officials about the need for a CalSTRS rate increase, Ehnes said he found a mixed view of the impact if a funding solution was not enacted by July 1 and school districts had to report a huge pension debt under the new rules.

“Some arguing it would have no effect if people understood the basis for this,” he said, “others arguing that it would have a significant effect on the bond market for schools. So the question was out there.”

With passage of the funding bill, any anxiety about a California State Teachers Retirement System pension debt shock, alarming the public and driving up bond costs, has been replaced by good news.

“We will not be the headline story in the country next year when GASB numbers are put out there, because of the success of the Legislature and the administration on this bill,” Ehnes said.

To read entire column, click here.