On the heels of San Diego and San Jose’s vote against public employee pensions comes this article: California’s Bad Bet Makes JPMorgan’s Look Minor
The key points were all aimed at a deal struck in 1999, at the height of the dot-com boom when California was flush with cash and Gray Davis was probably on the VP short-list.
Promising that “no increase over current employer contributions is needed for these benefit improvements,” and that the state pension fund
would “remain fully funded,” the proposal, known as SB 400, claimed that enhanced pensions wouldn’t cost taxpayers “a dime” because of
healthy investment returns. The proposal went on to assert that it “fully expects” the state’s pension costs to remain below $766 million a
year for “at least the next decade.”The Legislature included cost projections provided by the California Public Employees’ Retirement System — or Calpers — in the description
of the bill and passed it with broad bipartisan support. Governor Gray Davis signed it.Since then, the pension system has earned only 75 percent of what it had hoped.
Because the state is unconditionally on the hook, the state
budget has had to make up the difference. As a result, the state has spent $27 billion on pensions, $20 billion more than Calpers projected.Because the boosted promises last for decades — for employees’ lifetimes — and because the pension fund amortizes the difference between
what it expected to earn and what it really earned during such a long period, just a small portion of the increased costs has so far been
recognized. Far larger increases are in store.To finance the $20 billion of extra cost for pensions, the state has cut spending on services and raised taxes. As one example, spending on
the University of California and California State University systems declined 18 percent from 2002 to 2012, while state spending on pensions
rose 214 percent.
On top of the results in San Diego and San Jose and with a tax proposition coming in November look to hear more about the impact of SB400.