California public pensions underfunded
Independent government pension funds, including those operated by the city and county of Los Angeles, were in weaker conditions than previously estimated before the recession of 2008-2009, said a study released Thursday by Stanford University.
According to the report, written by former state Assemblyman Joe Nation of the Stanford Institute for Economic Policy Research, the state's independent pensions collectively didn't have enough money to pay for $195-billion worth of obligations to current and future retirees as of June 30, 2008.
Nation based that figure on a "risk-free discount rate" that projected that the funds would earn an extremely conservative average return of 4% a year. California pension administrators consider a 4% return as too low and base their forecasts on average annual returns of between 7% and 8%.
The average funding level, derived by dividing total assets by total liabilities, was only 44.7% for the independent systems, the Stanford study said. That's virtually identical to a number cited by a similar report earlier this year on the three big statewide pensions: the California Public Employees' Retirement System, the California State Teachers' Retirement System and the University of California Retirement System.
The growing obligation could force local governments to devote half of their payroll over the next 18 years to pay for such so-called unfunded liabilities, the study said.
According to Stanford, worst-case estimates for various Los Angeles-based retirement systems hit as high as nearly $40 billion as of mid-2008: the Los Angeles County Employees' Retirement Assn. had $39.7 billion, the Los Angeles Fire and Police Employees' System $14 billion, the Los Angeles City Employees' Retirement System $13 billion and the Los Angeles Water and Power Employees' System $8 billion.
The Stanford report "confirms that all levels of government have been understating the pension debts owed by taxpayers to government workers," said outgoing Gov. Arnold Schwarzenegger. He recently reached an agreement with lawmakers and some government workers unions to cut future pension benefits for new state hires.
-- Marc Lifsher