LAO: California Should Prioritize CalPERS, CalSTRS Debt Liabilities

California is only addressing a small portion of its $340 billion in long-term debt obligations, which include liabilities for CalPERS and the state's pension fund for teachers, according to a report by the state Legislative Analyst's Office, The Bond Buyer reports.

The report addresses state liabilities relating to:

Budget;
Infrastructure; and
Retirement.

Findings

The report found that the state is addressing about $50 billion of its retirement-related liabilities, but about $200 billion in liabilities will require more attention, including the CalPERS and CalSTRS programs.

According to the report, CalSTRS and CalPERS obligations represent two of the state budget's greatest long-term risks. CalSTRS still has a $73.7 billion unfunded liability, while CalPERS includes $64.6 billion in liabilities.

LAO Analyst Mac Taylor said, "Because CalSTRS and retiree health liabilities tend to have higher interest rates than the items on the wall of debt, failing to prioritize CalSTRS and retiree health will increase the state's budgetary risk in the longer run."

Recommendations

The report recommends that CalSTRS be fully funded in three decades. LAO noted that the Legislature could do so through additional state, teacher and district contributions totaling about $5 billion annually by the early 2020s.

Once CalSTRS' unfunded liability is addressed, the report recommends prioritizing CalPERS' $64.6 billion in liabilities.

According to the report, other obligations that the state should take action on include:

$13.8 billion in the University of California's pension program; and
$12.5 billion in retiree health benefits for UC employees (Chin, The Bond Buyer, 5/9).

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