Dan Walters: California Legislature ignoring teacher pension gap

The Sacramento Bee, 4/28/13.

David Crane, a businessman who advised former Gov. Arnold Schwarzenegger on financial matters – particularly long-term public pension deficits – recently wrote an I-told-you-so piece for the Bloomberg news service about the State Teachers Retirement System.

He and others had postulated last year that if voters approved the sales and income tax hike being sought by Gov. Jerry Brown, they would see the money disappear into CalSTRS, rather than into classroom instruction, as Brown, et al., insisted.

CalSTRS is now seeking $4.5 billion a year in additional funds from someone – the state, local school districts or teachers themselves – to cover its projected pension obligations.

And as Crane points out, the $4.5 billion assumes that the trust fund can meet its “unrealistically high investment return assumption that implicitly forecasts the stock market to double every 10 years.”

Were CalSTRS to adopt a more realistic earnings assumption – something like what corporate pension systems use – that $4.5 billion could easily grow to $7 billion, thus consuming all of Brown’s tax increase and then some.

Based on those data, Crane is entitled to his I-told-you-so. However, it doesn’t necessarily follow that the new taxes – which are temporary, by the way – will flow to CalSTRS.

Those who occupy the Capitol have an infinite ability to evade reality, even something as seemingly stark as a huge deficit in the teacher pension system that’s growing, by its own numbers, by $17 million each day.

The CalSTRS deficit is not new. Capitol politicians have been talking about it – but not doing anything about it – for several years.

Its larger cousin, the California Public Employees Retirement System, has the authority to decide how much money it wants from the state treasury and have it automatically transferred.

CalPERS can also bill local governments and require payment, and has just approved higher payments to keep its unfunded liability under control.

CalSTRS, however, must get an appropriation from the Legislature and the governor, and they can simply ignore its pleas, as they have been doing.

Tellingly, neither the 2012-13 nor the 2013-14 budgets, both of which are based on passage of those new taxes, contains a single extra dime for teacher pensions. All of the new money is spent elsewhere.

The Legislature’s budget analyst, Mac Taylor, has nagged the state’s politicians about that failure, as well as their refusal to address a $60 billion-plus unfunded liability for retiree health care obligations.

The politicians can – and will – ignore those issues because they won’t hit home for years, even decades, long after the current crop of officeholders is gone. But they also will hit much harder because nothing is being done now.

Link to full article: http://www.sacbee.com/2013/04/28/5377472/dan-walters-california-legislature.html