By David Crane | On September 20, the Federal Reserve recognized a truth long covered up by California’s public pension funds.
In its latest quarterly Financial Accounts report the Fed revised its measure of unfunded pension liabilities owed by state and local governments to $4.1 trillion, more than double the amount previously reported.
That means the $175 billion of unfunded pension obligations reported by the State of California is actually greater than $350 billion. The same math applies to local and other pension obligations across the state.
Financial economists have long called for that revision and in 2006 the State Senate removed me from the board of the State Teachers’ Retirement System (CalSTRS) for calling for that and other reforms. Had they reformed then, there wouldn’t be a pension problem today. But they chose differently.
The consequences are cruel. Tens of billions of dollars are being diverted from schoolchildren to adults. Key state services receive less money than ten years ago despite a 30 percent increase in General Fund revenues. Tax increases are going to past debts rather than new services.
The pension problem was relatively easy to address in 2006. Because officials didn’t act then, it is causing pain now. Reform for the benefit of schoolchildren and young workers will require sacrifices by retirees and courageous leadership by the California Legislature. Absent reform, public services will continue to decline.