Unfunded State Liabilities

By Tom Campbell

The state has more than $64 billion in unfunded pensions, and $22 billion in state employee retiree healthcare obligations above what it can pay. Those numbers are from 2016; they have grown since then. The state appropriates money annually to fund its pension and retiree health payouts that year. This is a hand-to-mouth existence, putting the state at great risk if pension payments or retiree health benefits rise.  California should take advantage of currently low interest rates to bond the state’s unfunded liabilities. At 3% interest, the annual charge to the budget would be under $4 billion, using a 40-year payback.  California would thus smooth out this otherwise potentially volatile expenditure, and lock in historically low interest rates.

Going forward, the state needs to make reforms in its pension system using a more realistic assumption of rates of return and switching to a defined-contribution rather than a defined-benefit system to the maximum extent allowed by constitutional law. The reforms recommended by Govern for California are particularly worthy of consideration.

The above are statements on several public policy issues drafted by Tom Campbell, former US Congressman, former California State Senator, former Director of Finance for California, and currently Interim Chairman of the Common Sense Party. They are meant to initiate consideration of several important issues; they are not the official views of the Common Sense Party. Please feel free to submit your own thoughts on these issues on the Open Policy Discussion Page.