Californians make many promises they can’t keep.  The City of San Francisco, according to the Chronicle, faces $4.9 billion in unfunded liabilities for city employee health benefits. 

"As this number keeps growing ... it can cripple our budget,” said Supervisor Sean Elsbernd.  “This will eat up all our discretionary income, the money we use for street repairs, parks and programs for the people of San Francisco.''

The city doles out generous benefits.  According to the Chronicle, “After five years of service, city employees are guaranteed lifetime health benefits for themselves and 50 percent benefits for a spouse or domestic partner. The State of California, by contrast, provides 50 percent health benefits after 10 years of service and full benefits after 20 years.”

But despite the state’s comparatively stingy program, it owns a burden of $48 billion in unfunded liabilities.  The governor’s office estimates that an additional $1.2 billion annually will be necessary to fund benefits and eliminate the liability over the next three decades. 

Other California entities also tend to make promises hard to keep.  Los Angeles County holds $16 billion in unfunded benefit liabilities and the Los Angeles Unified School District has $10 billion to cover.

In case these health benefits liabilities don’t turn heads, the Golden State also owns $49 billion in unfunded pension liabilities.  Pensions cost the state $2.6 billion in 2006 and administration costs alone reached $250 million.  Shockingly, JP Morgan estimates that the state's total liabilities—local governments included—is anywhere from $70-$200 billion.

How can California lighten its load?  Cutting back benefits and shrinking the size of government are always options, but strong resistance from employee unions and other interest groups would make such reform improbable.  The problem is that most state and local governments, including California and San Francisco, operate on a pay-as-you-go system.  They incur liabilities without concrete plans for future funding.   

To minimize health benefits costs, California could look to other states.  For example, Michigan increased co-payments and deductibles for retirees and out-of-pocket maximums for prescription drugs.  Utah allows a 100-percent contribution of unused sick time to the employee’s share of benefit costs. 

Another option is more employee autonomy. Replacing defined benefit pension plans with a defined contribution system would provide portability for public employees as well as stability and long-term savings for taxpayers.  Legislators need to take swift, intelligent action to ease the state’s back-breaking burden.