Update: CA’s FY2015 Pension Liability

Annual reports just issued by California’s two largest public pension funds indicate that the state added roughly $24 billion of unfunded public pension liability in fiscal year 2015.

In December, California’s two principal pension funds, CalPERS and CalSTRS, posted online annual reports for the most recently completed fiscal year, which ended June 30, 2015. Traditionally, those pension funds have employed an 18-month information lag about unfunded liabilities (UAAL’s), the amount by which pension liabilities exceed pension assets and the measure that most affects citizens. That’s because UAAL’s + interest = cuts to public services, tax increases, or both.

But fortunately, a new schedule mandated by the Governmental Accounting Standards Board (GASB) requires pension funds to update a measure known as the “Net Pension Liability” (NPL) as of the current fiscal year end. Because the NPL bears a relationship to the UAAL, observers can gain a sense of how the UAAL changed over the same period.

As shown on page 76 of the CalSTRS annual report, school districts and the state added $9 billion of NPL. On pages 78–79 of its annual report, CalPERS shows NPL growth for two of the three components that make up the Public Employees Retirement Fund (PERF) from which one may infer that PERF’s full NPL likely grew at least $15 billion.

Because California’s UAAL’s accrue interest at a high rate (7.5%, which is twice the current yield on CA General Obligation Bonds (GO’s) for the same maturity), $24 billion of additional UAAL’s will translate into well over $50 billion of service cuts and/or tax increases over the next three decades.

To put the single-year addition of $24 billion of debt obligations into perspective, that amount is nearly one-third of the total amount of outstanding GO’s. GO’s are voter-approved. UAAL’s are not.

Link to original article