Did you know that California just issued $9 billion in debt? There wasn’t a press release— in fact, the announcement was buried on page seven of a report quietly posted on a website — even though this debt is larger than 95% of California’s outstanding General Obligation Bonds.
This debt takes the form of one year’s increase in unfunded pension obligations to employees of the state’s K-12 system. Last year those liabilities were $58 billion. Now they’re $67 billion. The $9 billion addition is as real as any other debt. Arguably it’s more real because, as the Stockton decision demonstrated, bankruptcy courts are more likely to cut bond obligations than pension obligations.
As the Chicago Public School crisis illustrates, unfunded pension obligations harm schoolchildren. This is the phenomenon French economist Thomas Piketty warns about when describing debt as “devouring” the future. Including interest, this $9 billion debt will devour more than $20 billion that would otherwise benefit schoolchildren. Looked at another way, just one year’s interest on this debt is almost as large as the expected growth in state support for education in the current budget year.
Stay tuned. More debt will be quietly issued in January when the state reports the growth in other pension obligations. In the meantime, ask yourself how such debts get created without voter approval and why the creditors who will pocket the $20 billion are allowed to finance the elections of legislators who create those obligations.