New figures just released by Stanford University show that the market value of public employee pension debt in the State of California has climbed to $1.4 trillion as of November 2016, up 45% from just two years ago.
The total market value of public employee pension debt in the State of California now stands at $106,848 per household, according to Stanford University's Pension Tracker database (www.pensiontracker.org).
Perhaps more remarkable is the recent rapid acceleration in the debt from just two years ago. In 2014, California's total pension debt was calculated at about $950 billion but poor investment returns and a "stay the course" attitude among most public agencies have caused the debt to soar to an estimated $1.4 trilion in 2016--a 45% increase in just two years.
The calculations from Pension Tracker are based on actual numbers obtained from all of the state's public pension systems but reject the false assuption used by public agencies which assume a 7.5% annual rate of return on investements.
Stanford University experts use the same market rate figures that the California State Public Employeess' Retirement System (CalPERS) uses to calculate the market value of its pension debt.
Project director Joe Nation, Ph.D. says he believes that this is a more accurate figures because it is based on a 20-year treasury rate, as oppose to fictionary and outdated assumptions used by government agencies.
Nearly every financial expert in the country agrees that a 7.5% assumed rate of return is completely out of line with what one can expect from the market over the next 10 or 20 years.
Most California politicians deny that there is a public pension problem because they receive subtantial funding from the state's public employee unions who are holding the line on any type of substantive pension reform which would reduce their substantial pension benefits.
The Los Angeles Times, California Public Radio and others have produced recent investigative reports which argue that California politicians have misled the public about the pension problem and that in fact there exists a dire need for real pension reform.
Similarly, Calpers is also controlled by the state's public employee unions and is expected to consider a symbolic lowering of the unrealistic 7.5% investment return to 7.25% or something similiar to try to fend off pension reform critics and objective experts in public finance.
Nation, who comes from a family of public employees himself and formerly served in the California Assembly, says he does not believe that the state will be able to cover these debts without significant tax increases, but that pension reform is necessary to reduce the extremely costly level of public pension benefits awarded to public employees in the State of Caliornia.
Nation says public employee debt from retired employee health care and other post employment benefit obligations (OPEB) is estimated to total another $300 billion in unfunded liabilities. OPEB figures will be added to Pension Tracker at a future date.
Thus, the State of California's total unfunded public employee benefit debt is estimated to be about $1.7 trillion in 2016, on pace to exceed total annual economic activity in the state (GDP) in a few years, which totaled $2.4 trillion in 2014.
The state's total annual General Fund revenues totaled $125 billion in 2016-17, which means that it would take the State of California more than 14 years to retire its unfunded public employee pension debt even if it diverted all state tax revenues to paying down the debt.
Public bankruptcy could be an option, but thus far there is not a precedent for a U.S. state filing for bankruptcy protection. Several California localities, such as the cities of Vallejo, Stockton, San Bernardino, have filed for bankruptcy protection due to unaffordable public employee pension debt.
For more information please visit: www.pensiontracker.org or to stay up to date subscribe to the Pension Tracker Facebook page at: https://www.facebook.com/Pension-Tracker-946998268668447/
Below is a screencast, explaining the new Stanford data.