February 23, 2017 - Proposition 2 (2014) requires the state to make: (1) minimum annual payments toward certain eligible debts and (2) deposits into the state’s rainy day fund. This publication outlines alternatives to the Governor’s proposals that could free up General Fund resources. It also addresses whether the Legislature can access funds from state’s rainy day reserve under the measure’s budget emergency provisions.
May 7, 2014 - This report categorizes and provides information about $340 billion in California's key retirement, infrastructure, and budgetary liabilities. In addition, this report provides a framework for the Legislature to consider in prioritizing repayment of these liabilities and makes recommendations on which liabilities to pay down first and how the state could address such costs in the future. In general, we suggest that the Legislature prioritize actions to pay down those liabilities (1) with relatively high interest rates or (2) that result in benefits for groups or entities other than the state government. Due to its massive unfunded liability and relatively high growth rate, we recommend that the Legislature make a full funding plan for the California State Teachers' Retirement System a top priority in addressing the state's key liabilities.
February 24, 2016 - In this report, we analyze the administration’s proposal for meeting Proposition 2 debt payment requirements in 2016-17 and beyond. We find the administration’s proposal focuses on paying down low-interest debts that benefit schools and potentially benefit special fund fee payers. We suggest an alternative approach that could save taxpayers billions of dollars more over the long run. It would also allow the state to begin addressing more of its retirement liabilities sooner. Our approach focuses on high-interest debts that the state is otherwise not addressing. Specifically, we suggest the Legislature prioritize: (1) the state’s pension system for judges and (2) retiree health benefits for state and California State University employees.
February 5, 2019 - This report considers the overall structure of the Governor’s budget to evaluate how well it prepares the state to address a future budget problem. We begin with background to explain the state budget structure, budget problems, and options for addressing budget problems. We also provide background on the state’s existing reserves and debts and liabilities. We then present some key considerations as the Legislature considers its overall budget structure. Finally, we present and assess each of the Governor’s major budget reserve and debt and liability proposals and offer some alternatives for legislative consideration.
2/5/19: Corrected total of state spending deferrals in Figure 5.
May 16, 2017 -
As part of his May Revision, the Governor proposes the state borrow $6 billion from the Pooled Money Investment Account (PMIA) to make a one-time payment to reduce state pension liabilities at CalPERS. The Governor proposes that the state and General Fund and special funds repay this loan with interest over a period of about eight years.
As we discuss in this brief, we think the plan would probably save the state money over the long run, although uncertainties remain about the likelihood and magnitude of this benefit. However, the administration is asking the Legislature to approve a large commitment of public resources with insufficient consideration. The administration has provided few of the legal or quantitative analyses that the Legislature should expect when receiving a request of this magnitude and complexity. Moreover, the administration has introduced this proposal as part of the May Revision—with only weeks before the constitutional deadline for the Legislature to approve the budget. We doubt all of the issues we raise in the brief can be reviewed by the June 15 deadline. However, there is no reason that the Legislature must make a decision before June 15. We recommend the Legislature wait to act on this plan until after the administration has submitted more analysis. At that point, the Legislature could decide whether or not to approve the proposal.
May 16, 2014 - On May 13, 2014, the Governor released the 2014-15 May Revision to his annual budget proposal. The package continues to build reserves and pay down debts, including a new proposal to fund the teachers' pension system over about 30 years. Our May revenue forecast projects $2.5 billion higher revenues compared with that of the administration—not substantially different given the size of the state budget. In addition, we project over $700 million more in local property taxes for school districts. If the Legislature were to adopt our office's higher revenue forecast and property tax estimates, General Fund spending under Proposition 98 would increase $2.7 billion, relative to the administration's May forecast. Assuming that the administration's non-Proposition 98 spending estimates are accurate, this would leave around $500 million available for building reserves, paying down more debts, and/or other state priorities.
February 22, 2006 - California has benefited greatly from an over $11 billion three-year revenue increase since the 2005‑06 budget was enacted; yet, the Governor’s budget plan would still leave the state with major structural budget shortfalls and a large amount of other financial obligations outstanding. In this regard, we believe the proposal misses a real opportunity to finally get the state’s fiscal house in order by meaningfully addressing what is still a formidable fiscal problem.
March 10, 2020 - Over the next decade, the state will be required to allocate an additional $12 billion to $21 billion to accelerate the pay down of state retirement liabilities under the provisions of Proposition 2 (2014). This represents a key and unique opportunity for the state. The Governor offers one strategy to prioritize these funds over the next few years. Notably, the Governor focuses on the state’s share of the unfunded liability for teachers’ pensions. While we agree this focus makes sense, the amounts the Governor proposes dedicating to this purpose are not connected to the specific actuarial needs of the teachers’ pension system. In this report, we present a method the Legislature could use to tie these payments to the system’s actual needs, which would better target the funding.
October 17, 2019 - This post describes the debt and liability payments made as part of the 2019-20 budget package.
May 17, 2019 - This report presents our office’s independent assessment of the condition of the state General Fund budget through 2022-23 assuming the economy continues to grow and all of the Governor’s May Revision spending proposals are adopted.
November 8, 2011 - The Governor’s 12-point pension and retiree health plan would result in bold changes for California’s public employee retirement programs. His proposals would shift more of the financial risk for pensions—now borne largely by public employers—to employees and retirees and would, in so doing, substantially ameliorate a key area of long-term financial risk for California governments. Despite the proposal’s strengths, it leaves many questions unanswered, such as how his hybrid plan and retirement age proposals would work and how the state should cope with large unfunded liabilities already affecting the California State Teachers’ Retirement System, the University of California Retirement Plan, and the health benefit program for state and California State University retirees. The Governor’s proposal to increase many current public employees’ pension contributions also raises significant legal and practical issues.
May 5, 2017 - The CalSTRS board recently acted to change assumptions used to estimate its unfunded liabilities, including the key assumption about future investment returns--sometimes referred to as the "discount rate." These and other recent developments have eroded CalSTRS' funding situation. This brief details these changes and describes how they will affect the state, school and community college districts, and teachers
March 4, 2014 - The Governor's budget proposes $24 billion to pay salary and benefit costs for state workers in 2014-15, up from an estimated $23.5 billion in the current year. The increased costs reflect pay increases for most state workers, rising health and pension benefit costs, and a net increase in the number of state workers. In this report, we provide an overview of the state workforce, current collective bargaining agreements, and state employee compensation costs in 2014-15. We also discuss historical trends of state employee compensation costs and state worker take-home pay. We find that over the last two decades, after adjusting for inflation and state worker cost for health and retirement benefits, state worker take-home pay has remained largely flat while state costs per employee have grown significantly. In addition, assuming the number of state workers does not decline significantly, we expect the state's employee compensation costs to increase for the foreseeable future.
February 19, 2003 - To reduce budget costs, the administration proposes to finance up to $2.5 billion in scheduled retirement contributions to the Public Employees' Retirement System (PERS) and the State Teachers' Retirement System (STRS). We recommend rejecting this proposal because incurring decades worth of debt to avoid an annual operating expense is poor fiscal policy.