New PRI Chartbook Shows California’s Public Pension Monster Has Grown to Nearly $1 Trillion
A new chartbook released today from the Pacific Research Institute shows that California’s unfunded public employee pension debt problem is far worse than imagined – nearly $1 trillion.
“An honest look at California’s pension debt shows the problem has grown to nearly $1 trillion,” said Dr. Wayne Winegarden, PRI Senior Fellow in Business and Economics. “To meet the state’s pension obligations, taxpayers could be on the hook for massive, economy-crushing tax hikes. This chartbook should be a wake-up call to Sacramento to make pension reform a priority before it’s too late.”
Using a market estimate, which better accounts for liabilities and risk, California’s pension debt is nearly $1 trillion – and just 28 percent funded. The typically-cited actuarial estimate pegs the problem at approximately $250 billion and 71 percent funded. Winegarden said actuarial estimates consider the value of future liabilities and potential investment return rates, but don’t properly account for risk.
- State and local governments could be forced to spent between 14.5 and 23.6 percent of tax revenues over 30 years to pay down the $1 trillion pension debt.
- Massive tax increases required to pay California’s pension debt could shrink the state’s economy by 18 percent over 30 years.
The PRI chartbook, which was compiled using data from the government transparency group Open the Books, also shows California’s public pensions are even more lavish than originally thought. State worker pensions are geared toward members of the “$100K Club” – pensioners who take home a pension of more than $100,000 a year.
- Just 4.8 percent of retirees are $100K Club members, yet payments for their pensions account for 15.1 percent of pension spending.
- The average $100k Club state worker pension is 83.6 percent higher than California’s median household income, and 151.1 percent higher than median incomes in households over 65 years of age.
“Hard-working Californians who could never dream to get a $100,000 pension are being asked to pay higher taxes or face painful budget cuts to fund lavish public pensions,” Winegarden said. “Our chartbook shows that by taking tough but necessary action to reform the system, we can still guarantee fair yet secure retirements for state workers without bankrupting the state.”
Despite the many political constraints, Winegarden recommends that lawmakers consider enacting pension reforms to bring public employee pensions in line with either California’s median household income, or median income in retiree-aged households, which the chartbook shows would save up to $160.2 billion over 30 years.