California Pension Debt Climbs Despite Strong Economy

The comments below are an edited and abridged synopsis of an article by Joe Nation

In 2008, California’s unfunded pension liability was over $500 billion—seven times the number officially reported. Over time, the public pension debt doubled to more than $1.052 trillion in 2017, the last year of complete data.

California Pension Debt Climbs Despite Strong Economy | BullionBuzz
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Based on recently reported public pension assets and estimated liabilities, that figure is now more than $1.109 trillion, an increase of $56 billion. That translates into $81,300 of pension debt per California household.

Figures reported by California’s pension systems produce the same trendline. Debt per household today is almost $22,800, compared with less than $8,000 in 2010. This trend has continued even as the stock market has soared.

This, unfortunately, isn’t the most alarming news.

No one knows when a recession will hit, but another Great Recession-like downturn in the stock market could push California’s state and local government public pension system assets down from $918 billion today to just over $700 billion.

The average funded ratio for all public pensions in California would fall from 75% to 56% on an actuarial basis, meaning pensions would have just over 50 cents for every dollar in obligations. This is the optimistic scenario.

The average funded ratio on a market basis would fall from 46% today to 34%, or 34 cents on every dollar owed.

Pension debt would climb from $311 billion today to $543 billion on an actuarial basis. On a market basis, pension debt would climb to $1.341 trillion, or nearly $100,000 per household.

Even a mini recession, in which pension systems’ assets fall by one-half of Great Recession levels, would be a horrible development. Schools and municipal governments, already cutting programs and services despite strong revenues, would be forced to cut even further.

Taxpayers would be asked to chip in more. Public employees would face layoffs, salary cuts, and in some scenarios, reductions in retirement benefits.

One thing is certain: Ignoring this problem won’t make it go away.

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