Schwarzenegger's advisor warns against unfunded pension debt

08:47, April 07, 2010      

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California Governor Arnold Schwarzenegger's advisor warned on Tuesday that a huge unfunded pension debt would plunge the state into greater chaos in the future.

According to a study released Monday by Stanford University's public policy program, California's real unfunded pension debt clocks in at more than 500 billion dollars, nearly eight times greater than officially reported.

The study confirmed a recent report with similar, stunning findings from Northwestern University and the University of Chicago.

To put that number in perspective, it's almost seven times greater than all the outstanding voter-approved state general obligation bonds in California, said David Crane, Schwarzenegger's special advisor for jobs and economic growth.

This year's unfunded pension liability is next year's budget cut to important programs, Crane said in a news release.

For a glimpse of California's budgetary future, look no further than the 5.5 billion dollars diverted this year from higher education, transit, parks and other programs in order to pay just a tiny bit toward current unfunded pension and healthcare promises, Crane noted.

That figure is set to triple within 10 years and -- absent reform -- to continue to grow, crowding out funding for many programs vital to the overwhelming majority of Californians.

Crane said the reason behind the unfunded pension debt is simple: for decades -- and without voter consent -- state leaders have been issuing billions of dollars of debt in the form of unfunded pension and healthcare promises, then gaming accounting rules in order to understate the size of those promises.

"Past pension underfunding means reduced funding of current programs," Crane said. "This explains why pension costs rose 2,000 percent from 1999 to 2009, while state funding for higher education declined over the same period."

Crane was pessimistic about what should be done to address the issue. "What can we do about this? For the promises already made, nothing. They are contractual, and because that 500 billion dollars of debt must be paid, retirement costs will rise dramatically no matter what we do. But we can reduce the sizes of promises made to new employees and require full and truthful disclosure so that pension debt can never again be hidden."

Crane called on legislators to embrace pension reform so as to protect programs and taxpayers.

"There is no structural impediment to pension reform, and no initiative has forced legislators to issue all that pension debt. All of the damage has been caused by legislation, most notoriously SB 400 in 1999, which retroactively and prospectively boosted pension promises by billions of dollars without boosting contributions. Likewise, all the remediation can be accomplished by legislation."

Source:Xinhua

(Editor:intern1)

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