February 17, 2006 - The costs of providing health care to retired state employees and their dependents—now approaching $1 billion per year—are increasing significantly. Many other public employers (including the University of California, school districts, cities, and counties) face similar pressures. This report discusses health benefits provided to retired public employees, focusing on state retirees. We find that the current method of funding these benefits defers payment of these costs to future generations. Retiree health liabilities soon will be quantified under new accounting standards, but state government liabilities are likely in the range of $40 billion to $70 billion-and perhaps more. This report describes actions that the Legislature could take to address these costs.
February 23, 2006 - In our Analysis of the 2005-06 Budget Bill, we discussed the range of fiscal issues facing school districts. These included low general purpose reserves, internal borrowing from self-insurance funds, and falling state revenues due to declining enrollment. We also discussed the long-term challenge created by new accounting requirements on retiree health benefits. The financial health of districts has not improved significantly, and may have even worsened somewhat, over the past year. Here we deepen our discussion of the impact of the new accounting requirements on K-12 school districts and reiterate our recommendations for ensuring that districts address retiree health liabilities. We also provide the Legislature with an option to help improve district financial conditions through a fiscal solvency block grant, which would give districts flexible funds to address the broad range of fiscal problems encountered locally.
May 9, 2007 - The Legislature required the Controller to contract with actuaries for California's first valuation of unfunded state retiree health liabilities. On May 7, 2007, the Controller reported that the state's estimated unfunded liabilities total $48 billion. This report answers key questions concerning the valuation and identifies actions the Legislature could take to address the state's 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.
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.
March 16, 2015 - Health benefits for retired state employees constitute a large and growing cost for the State of California. The state’s retiree health benefit program constitutes the state’s last major liability that needs a funding plan. As part of his 2015-16 budget, the Governor proposes one approach to address retiree health liabilities through the collective bargaining process. In our report, we recommend that the policy committees of the Legislature hold hearings to discuss the Governor’s proposal—as well as other options to address retiree health liabilities—with actuaries, employee groups, policy experts, and the public. We acknowledge that a delay in implementing a funding plan might make some elements of a funding plan more expensive; however, we think it is more important to get the plan right that to quickly set up a plan that can be implemented in 2015-16.
October 17, 2019 - This post describes the debt and liability payments made as part of the 2019-20 budget package.
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 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 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.