The reality of state’s ‘ surplus’
The recent stock market turbulence has given pause to individuals who were counting on their 401( k) plans as a linchpin of their retirement. It should be a major cause for concern for all Californians: Pension plans overseen by the state and local governments have been counting on what many analysts regard as overly optimistic returns to meet commitments to retirees for the long term. And the pension burden is not even the more serious of the unfunded liabilities.
As Chronicle staff writer Melody Gutierrez reported on Sunday, future obligations for health and dental benefits to current and retired state workers could grow to $ 300 billion by 2047 without changes to the system.
Gov. Jerry Brown took note of “the moral obligation” to address such fiscal time bombs in last month’s State of the State speech.
“These liabilities are so massive that it is tempting to ignore them,” Brown said — and, naturally, our elected representatives have generally yielded to that temptation, even as the state’s annual cost of providing retiree health care has tripled since the 2000- 01 fiscal year. The rate of growth will only accelerate as more Baby Boomers retire. “We can’t possibly pay them off in a year or two or even 10,” Brown said. “And there is little satisfaction in chipping away at an obligation for three decades to pay for something that has already been promised.” The state has three options. It can hope against hope that Sen. Bernie Sanders or another advocate of universal health care is elected president — and can persuade Congress to pass it — and the burden will be lifted off the state. That would not be a smart- money bet, to say the least. Or our elected officials can stay on a pay- as- you- go approach, and watch the annual cost to the general fund — now $ 2 billion — expand to the point that it squeezes other programs. That would be patently unfair to younger taxpayers and people who depend on the state for other services.
The responsible option would be to forthrightly acknowledge the gap between promise and investment, and either set aside dollars for these future obligations or pare back future benefits — or some combination thereof. The state and some local governments have made some minor steps in this direction — such as requiring longer vesting periods, small employee contributions and a reduced benefit for unionized engineers — but those measures often are offset by salary increases. But those pay raises create a long- term obligation of their own in elevated pension payments.
Greater discipline also is required on pension plans that rely on unrealistic investment returns to meet promises to government workers.
The public- employee unions are very adept at vilifying any serious attempt at trimming pension or retiree health- care benefits as antiworker and an attack on government.
But this look- the- other- way approach to unfunded liabilities is not doing any favors to the long- term future of governments or even the unions that represent their workers.
The governor made plain last month that he recognizes the challenge. The question is how aggressively he will pursue solutions. In the meantime, he and state legislators should contain their self- congratulation over an illusory surplus and their fiscal responsibility.