CALIFORNIA’S “WALL OF DEBT”
How much debt has the State of California accumulated? A real understanding of this question must include a thorough definition of debt in order to comprehend the scope of what we are dealing with.
The most complete definition of debt would be: any obligations that government has spent and expects taxpayers to cover. This definition would include any bonds, pension liabilities and repayment of special funds that the state has borrowed from.
By this reckoning, an estimate of what the state of California owes is over easily over $500 billion.
Governor Brown mentioned the “wall of debt” in his May revise budget in 2011; however he was very selective in his definition of debt and thus was only a small segment of what the actual debt obligation looks like.
The Legislature has continued to “kick the can down the road” and has not significantly addressed the issue.
This delay in reckoning has enormous consequences. In the last two years alone, the Legislature’s inaction has added nearly $2.5 billion in debt.
The cost of delaying pension reform alone has costs $3.4 million a day according to the Stanford Institute for Economic Policy Research (SIEPR) pension study. Overly optimistic CalPers/STRS (7.75%) and University of California Retirement Plan (7.5%) return still has a $142.6 billion which equals a shortfall of $12,000 per household. Using a more fiscally realistic return rate of 6.2%, the shortfall is over $24,000 per household.
Borrowed money as proved to be a politically irresistible in Sacramento, a safe haven for Democrats and Republicans involved in the constant battle over tax hikes vs. service cuts. Add to this California’s rock bottom credit rating, which means California pays a premium for borrowed money. Taxpayers owe $2 for every $1 borrowed—about 20% more than other top-rated states.
This is an alarming amount of debt. The Governor and Legislature’s current plan involves some spending cuts, and not surprisingly, huge tax increases. Taxes are not the problem; spending and enormous debt obligations are the real problem.
Statewide Debt Obligation
General Obligation Bond Debt Amount (billions) Comments
|
Outstanding Government Obligation debt |
$72.8 |
Total debt authorized is $129.9 billion. Of that amount, $35.8 billion has not been sold to investors and $21.3 billion has been sold and redeemed. |
|
Economic Recovery Bonds
|
$6.5 |
The original sale was $15 billion. This debt has a dedicated funding source (1/4 cent sales tax until paid off). |
|
Outstanding Enterprise Fund Bonds
|
$1.2 |
California Water Resources Development Bond Act and Veterans Bond Acts. An additional $1.3 billion is authorized but not sold. |
Total $80.5
Lease Revenue Bond Debt Amount (billions) Comments
|
Outstanding Lease Revenue Debt |
$9.4 |
Original bond sale was $13.5 billion. Annual lease payments scheduled for 2011-12 ($905.8 million). The state has authorized $12.14 billion but have not been issued to investors. |
Total $9.4
Education related Amount (billions) Comments
|
Unpaid education mandates |
$3.8 |
As of Nov. 2011 |
|
QEIA settlement |
$1.5 |
Payment of $450 million annually until complete (2014-15) |
|
Proposition 98 settle-up |
$1.5 |
|
|
Deferred payments to schools (K-14) |
$10.4 |
|
|
Proposition 98 maintenance factor |
$9.5 |
|
|
California School Boards Assoc. lawsuit |
$2.1 |
|
Total $28.8
Unfunded Pension Liabilities* Amount (billions)* Comments
|
Public Employee Retirement System (PERS) |
$48.6 |
Governor’s May Revision number |
|
State Teachers Retirement System (STRS) |
$56.0 |
|
|
University of California (UCRP) |
$12.9 |
|
|
Unfunded Pension Liability for Judges |
$3.6 |
|
|
Other Post Employment Benefits (OPEB) (State) |
$59.9 |
|
|
OPEB (University of California) |
$14.0 |
|
|
Pension & OPEB (non-state) |
unknown |
Estimates for all state and local pensions and OPEB liabilities range from $240 billion to $500 billion. |
* all numbers were from the Governor’s May revise, which are on the low end for liabilities.
Total $195.0
Other Obligations Amount (billions) Comments
|
Unemployment Insurance Loan from Feds |
$8.7 |
UI Trust Fund Balance per EDD |
|
Loans from special funds |
$3.5 |
Borrowed from special funds to support General Fund in 2002, 2003, 2004, 2010, 2011 |
|
Unpaid Local government mandates (Prop. 1A) |
$0.9 |
Pre-2004 non-education mandate costs to be paid by 2020-2021 |
|
Borrowing from local governments (Prop.1A) |
$1.9 |
Borrowed from 2009 to be repaid no later than 2013 |
|
Deferred Medi-cal costs |
$1.2 |
|
|
Deferred state payroll costs from June to July |
$0.8 |
|
|
Deferred payments to CalPERS |
$0.5 |
|
|
Borrowing from transportation funds (Prop. 42) |
$0.5 |
|
Total $18.0
Grand Total $331.7
Bonds authorized but not sold $49.24
*Possible Debt Obligation $380.94 *$60 to $300 billion more depending on non-state pension obligations
In conclusion, California is swimming in debt. Just the pension obligation will cost each household anywhere between $12,000 to $31,000. While the public employee unions use the overly optimistic 7.5% rate-of-return on investment, that still saddles each household with a $12,000 bill. The SIEPR study uses a conservative 4% rate-of-return, which means a $31,000 per household tab. Even the modest 6.2% rate-of-return will cost each household $24,000. This is only the pension obligation, not the bonds and special funds repayment. Pretty soon we’ll being talking real dollars.
Sources: Governor’s May Revise, 2011
Treasurer’s Debt Affordability report, 2011
State Controller’s Actuarial report, March 2011
SIEPR; April 2010, December 2011
