By Daniel Borenstein
Posted: 02/04/2016 06:00:00 PM PST
Updated: 02/04/2016 09:14:06 PM PST
Two years ago, Gov. Jerry Brown pushed through a 32-year plan to shore up the California State Teachers’ Retirement System.
He said the state, school districts and teachers would share responsibility to “fully fund” the $74 billion shortfall of the nation’s second largest pension system.
But it may not work out that way. The state Legislative Analyst’s Office says the “abstract” calculation CalSTRS uses to implement the deal produces unexpected results.
It could shift a greater-than-expected portion of the burden for paying off the debt to school districts; makes the state share highly vulnerable to market volatility; and leaves a good chance that the state will pay no more than it would have before the deal was struck.
As a result, “The plan may fall short of the Legislature’s and the administration’s key goal of ‘shared responsibility,’ ” according to the LAO.
Moreover, in the long term, the plan does not ensure that the debt will be paid off by 2046, or ever. That’s because rates for the state can go down easily during times of strong investment returns but increase only slightly to make up for market losses.
The Legislature and governor should simplify the agreement, making it more transparent, eliminating the state’s disproportionate vulnerability to market fluctuations and requiring full debt retirement in three decades. As it is, that’s too long a payoff period. There’s no excuse for leaving the door open to even more delay.
The administration, CalSTRS officials and Assemblyman Rob Bonta, D-Alameda, author of the enabling legislation, say the deal is working exactly as it was designed.
Maybe so. But it’s certainly not how it was presented to the public, nor how the LAO understood it.
The agreement relies on increased contributions from the state, school districts and teachers as well as investment returns to cover the shortfall. At issue is how to apportion responsibility among those parties for the $74 billion debt.
The debate reaches back to 1990, the year the state embarked on its prior funding plan for CalSTRS. At that time, the state agreed to increase its contribution enough to pay off the shortfall over 40 years.
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