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California Pensions Not as Bad as... Some Other Places

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California Pensions Not as Bad as... Some Other Places

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What's missing from Business Insider's list of the 10 cities whose pension funds are most in danger of running out of money? There are no California cities in the top 10. The methodology of the researchers relies heavily on the size of the unfunded obligation as a percentage of the population to gauge how endangered a pension fund is. Philadelphia, Chicago and Boston are 1-2-3 on this list.

But, you say, isn't the state of California in bigger trouble? Not according to these statistics. The state's pension funds don't make the top 10 list of state pension funds most in trouble. (#1 here is Illinois).

Such projections have limited value, in part because no one can know the future of the markets or the economy. And these projections depend on no changes to these funds (they assume 8 percent annual increases in benefits and three percent annual increases in the growth of the funds). But they do make the point that, for all the apocalyptic talk about pension obligations in California, we're very much in line with the rest of the country. Unfunded pension obligations are not just a California problem -- they're a national problem.

UPDATE (ON WHY THIS POST IS OFF-BASE): A wise colleague, who is an expert in pensions, argues convincingly that I'm conflating two related but separate things: the adequate funding of pension liabilities and the size of pensions.

Prop 162 has made the first not much of an issue, at least for CalPERS, the big pension fund for government employees. Prop 162 requires participating governments to make payments to fund the pensions. That's very different than states like Illinois, which haven't set aside the money to pay for pensions. 

California's problem, my colleague notes, is the size of our promises. State and particularly local governments have made very big promises for pensions that require rising payments. In California, we'll pay for such pensions--but will have to take that money from things the public may want more.

In short, California has a different kind of pension problem than the states and cities on these lists.


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