New Cali Budget Warns CalPERS Contributions "On Track To Double" In 6 Years

Tyler Durden's picture

In his latest budget proposal, California Governor Jerry Brown, who continues to vehemently pursue various multi-billion dollar pet projects like the high-speed rail and the so-called "Delta Water Fix" despite his state teetering on the brink of insolvency, has finally admitted that CalPERS, California's public pension system, is a total disaster.

Apparently Brown finally came to the realization that a 65% funding ratio is slightly less than ideal, especially since we're on the precipice of a massive wave of Baby Boomer retirements, and warned that the "state’s contributions to CalPERS are on track to nearly double by fiscal year 2023?24."

As of June 30, 2016, CalPERS reported that the state plans’ unfunded liability totals $59.5 billion and is 65 percent funded, meaning that CalPERS only has 65 percent of the funding required to make pension payments to state retirees.


Without the supplemental payment, by 2023?24, the state’s contribution is estimated to reach $9.2 billion ($5.3 billion General Fund), due to anticipated payroll growth and the lower assumed investment rate of return.

But don't worry, it's nothing that a little extra taxpayer-funded bribe to organized labor can't does an extra $6 billion sound? that sufficient to buy your votes for a few more election cycles?

The May Revision includes a one?time $6 billion supplemental payment to the California Public Employees Retirement System (CalPERS) in 2017?18. This action effectively doubles the state’s annual payment and will mitigate the impact of increasing pension contributions due to the state’s large unfunded liabilities and the CalPERS Board’s recent action to lower its assumed investment rate of return from 7.5 percent to 7 percent.

And for those who might be worried that a doubling of California's annual pension contributions seems like a huge burden for taxpayers to absorb...fear not, because they've basically already doubled over the past 5 Brown has experience in "managing" such catastrophes.


Moreover, once we get to 2030 the whole problem just kind of magically fixes itself.


Of course, as we noted last December (see "CalPERS Board Votes To Maintain Ponzi Scheme With Only 50bps Reduction Of Discount Rate") the above contribution forecast is nothing but a pipe dream as even CalPERS' own finance committee chair admits that the pension's discount rate still needs to come down materially from the current level of 7%.  Per our prior post:

A few weeks ago we asked whether CalPERS would rely on sound financial judgement and math to set their rate of return expectations going forward or whether they would cave to political pressure to maintain artificially high return hurdles that they'll never meet but help to maintain their ponzi scheme a little longer (see "CalPERS Weighs Pros/Cons Of Setting Reasonable Return Targets Vs. Maintaining Ponzi Scheme").  The decision faced by CALPERS was whether their long-term assumed rate of return on assets should be lowered from the current 7.5% down to a more reasonable 6%.  Well, we now have our answer and it seems the board erred on the side of maintaining the ponzi with a decision to reduce the fund's discount rate by only 50 bps, to 7%, to be phased in over 3 years.


While a 50bps decrease to a 7% discount rate will still trigger roughly $1 billion in incremental annual contributions from various California government entities according to Eric Stern of the California Department of Finance, it is still a long way from the fund's estimated returns of just 6.2% over the next decade which happens to match exactly their returns from the past decade.


Meanwhile, Richard Costigan, chairman of the CalPERS finance committee, who vowed that "this is just a start," more or less admits that the decision was politically motivated to allow "municipalities and other government agencies some breathing room before they absorb the impact."

Of course, you could never get re-elected if you told the whole truth...

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Stan522's picture

Hahahahahaha, Haha, Hahahahahaha, Haha, Hahahahahaha, HAha, Hahahahahaha, Haha... I'm moving out of the God forsaken state. Hope it collapses upon it's lying ass politicians bullshit weight..... Gone at the end of June!

x marx the spot's picture

Bye gurl. We not gonna miss you.

cheka's picture

no worries, as long as they continue to install all of the agenda jpm will loan them many billions at 0.5 interest (again)

Mr. Universe's picture

What we have here, is a failure to communicate...

The big jump in unfunded liabilities means a bigger burden on future California state budgets. The May Revised Budget reveals that the state’s contributions to California Public Employees’ Retirement System (CalPERS) “are on track to nearly double from $5.8 billion ($3.4 billion General Fund) in 2017?18 to $9.2 billion ($5.3 billion General Fund) in 2023?24.

CalPERS projected it would earn a 7.5 percent investment return last year, but the world’s largest investor only earned a 1 percent return. With that huge underperformance potentially putting an even bigger burden on the state budget, Gov. Brown is proposing to borrow $6 billion from another state account called the Surplus Money Investment Fund.

But in a typical example of how the State of California uses smoke and mirrors continuouslyto justify increasing pension benefits without adequately funding their costs, the Brown administration intends to pay the interest cost of the loan from the Surplus Money Investment Fund by borrowing from the voter-approved Proposition 2 rainy day fund.

I like how the worlds largest investor during a record period of stock market activity where every investment is at all time highs was able to manage just 1%. I wonder how they didn't manage to lose 4-5%?

The_Juggernaut's picture

I hope they secede before they ask the rest of us for a bailout

vato poco's picture

no problemo! just raise taxes! problem SOLVED, dudes!!

Brown for Preezy 2020

securitized-debt's picture

she was a waitress in a cocktail bar now she owns a jet...

jcaz's picture

Gee, California keeps electing Moonbeam and then wonders what goes wrong-  that's some genius thinkin' there......

monad's picture

What election? CNN called California for Clinton and the cancer when only 3% of the votes there were counted. They didn't even trying to hide it, because they were attempting to influence votes in other states. The CA state progturds are now trying to legislate moving their election date up with specifically this intent. It is well documented. Brown, Clinton, Obama, Holder, Soros and Bibi are up to their necks in plundering CA and breaking up the USA to do it.

This is unconstitutional:

Sister city treaties are unconstitutional.

Discrimination in public and private employment, academia, financial services, even welfare, immigration, medical and legal services is unconstitutional, yet it is their policy since at least the 80s. Rob Peter to pay Paul and then rob Paul, all with the aid of the unconstitutional "justice system".

junction's picture

Talking about mendacity in general, is Governor Brown under medical treatment for some serious medical condition, say cancer or Hodgkins' Lymphoma?  Like Hillary's unexplained absences during her campaign, Brown seems to vanish from public sight even when there is some disaster going on, like when the Oroville Dam fell apart.  

Stan522's picture

Brown is not under any kind of treatment.... he's your modern day progressive which has a belief system where he is a MSNBC and Huff Post-indoctrinated, constitution-contemptuous, traitorous, racist, sexist, baby-butchering, sodomy-celebrating, marriage-devaluing, rights-from-government-not-from-God believing, 2nd Amendment-hating, innocents-murdering, criminal and domestic terrorist-empowering, illegal alien foreign invader enabling, societal-parasite-pandering Tyranny Party excrement-bagger's who smear the constitution, and the blood of those who died to defend it, with the pathogenic excreta of elitist fascist contempt drawn from their ever-present, power-and-control-greedy, liberty-hating, slavery-to-the-state-supporting, government-is-god, philosophical bag of egalitarian, neo-Marxist feces


Mr. Universe's picture

Like Hillary light is death to reptilians (see the movie Battleship). I doubt these people are who they really are. I would think that Moon beams dad, an old school democrat would be spinning in his grave over what his son and successor had done.

Stormtrooper's picture

Looks like the Mexican illegals may have to cut back on Tomales to contribute more taxes to the California public officials who "earned" their $200,000 pensions.  We may need a wall to keep them from escaping back to Mexico.

Mr. Universe's picture

Lets just say for arguments sake you decided early on (1985) , you could live on one salary, albeit at much less than the private sector but retire in confidence with a defined benefit pension would you do it?

After years and then decades of below inflation wages, a decent contract was signed. It is frustrating to have watched your colleagues move out to the private sector after "retiring" and earning so much more. However after a certain point you earn the golden shackles. Safety personal have no concern, but other county employees do. Running the numbers over and over, they have got you, at this point the best is to keep working a few more years and hope the pension fund holds out.

Muppet's picture

Long-term or lifelong employment by government will collapse and perish.  It is a current illness that will pass.

Government should have never become your or anyone's lifetime income source.   No one should deny, delude or overlook that such income is derived via tax...  and tax is a heavy burden bore on the citizenry.  Until the 1960s or so, schools taught the virtues of civics, ethics and the ideal of "service to ones government".  These ideals were widely understood and, while no longer taught, these ideals remain truths.

Properly, citizens should step forward, serve their government, and then leave.  Those who serve should not seek equality with the private sector (as you asserted).  This too is seemingly forgotten today but again is truth.   While employment via Government has become entrenched, exploited and commonplace, it is objectivity not right nor ethical.  Term limits should exist in every level of government.  This itself would greatly help restore  the proper view of government service vs. government employment.   Sooner or later, this ideal will be restored.  Todays approach will collapse.

Xena fobe's picture

Now that song is stuck in my head. 

AC_Doctor's picture

When the upcoming stock market crash/lockout hits,  KALI and SHRILLINOIS are fucking toast by the end of the trading week.

divingengineer's picture

When oil goes back to $100bbl(just because they want it to) gas will be $6 a gallon and when the stock market takes a real pullback it will cause a jobs crisis again.
Who will pay?
Homeowners, watch and see, house taxes will become downright draconian.
Like New Jersey, only with all the other "highest in the nation" taxes in California. Prop 13 will be scrapped and your rates will quadruple in 10 years.

Juggernaut x2's picture

If the Fed can just print it why in the fuck does anybody even have to pay taxes?

Let it Go's picture

Vadid point, and I would like to add, with so many people thinking that deficit government spending helps drive the economy at some point our leaders and those across the globe might want to give us taxpayers a break. Why Not Stop Taxation Altogether? It would send the GDP soaring.

Just End It! Such a policy would go a long way to diminish the divide polarizing our nation. I do not know anyone who likes to pay taxes or go through hours and hours of record keeping and filling out forms. The article below delves into the benefits of such a policy.

pitz's picture

Good riddance to Proposition 13.

markar's picture

Fuck you. It's our last and only line of defense against a communist controlled, fiscally irresponsible state legislature.

rockstone's picture

Remember, the pensioners only need to see it last until they die. Fuck who's ever coming up behind them.

stant's picture

Get the fuck out bitchez

. . . _ _ _ . . .'s picture

Growth kills, 12%/yr. growth kills even faster.

Twice as much again by 2030.


If only politicians understood basic math.

Xena fobe's picture

California taxpayers also now forced to pay $30 million to provide legal defense for illegal aliens fighting deportation. 

gregga777's picture

It would cause massive panic and heart attacks were the illustrious American Intellectual Yet Idiot classes ruling morons to actually begin telling the truth.

Anopheles's picture

7% returns? 

Oh, that's right, the stock market is going to keep increasing at this same rate FOREVER


G-R-U-N-T's picture

Smells like, Smells like default in the air! Can't wait to see the fireworks when checks stop!

Bobportlandor's picture

The Most IMPORTANT Video You'll Ever See (part 1 of 8)

Exponential Function


Lost in translation's picture

Crash this pig, already! Into a million pieces, SMASH IT!


Cordeezy's picture

The retirement systems we have aren't adequate at 0 percent interest rates, in decades to come this will only get worse because the system isn't sustainable but dealing with it isn't a popular political move

pitz's picture

ZIRP has greatly enhanced pension solvency as asset values have grown much faster than merely implied by lower discounting of future cashflows.  If you want to see disaster, let the rates go higher and have the stock and bond markets crash. 

Give Me Some Truth's picture

This is probably main reason stock markets can't be allowed to crash. In fact, they must continue to rise at a high clip.

pitz's picture

Why is the State of California in the life insurance business? 

Bopper09's picture

It will surely be Russia's fault.

Farmerz's picture

No worries, they'll just raise fuel/registration tax/fees again.

VWAndy's picture

 Not until they are all driving electrick cars. Then oh yea they will vote for massive gas taxes.

VWAndy's picture

 They are pretty good at voting for more money. Its a big voting block.

gespiri's picture

I left that state in 2002 and never looked back.  

Gen. Ripper's picture

Great, that means the motherinlaw needs to croak in under 5 years. She ain't moving in with me.

otschelnik's picture

Moonbeam economics. 

redc1c4's picture

we're a speshul kind of st00pid here in #Failifornia

Give Me Some Truth's picture

Now we know why stock markets MUST be inflated.

gookempucky's picture

That 7% is nothing but a price projection (most if not all pensions use this) --used to maintain a large number within the account and that any shortfall "by state statute" must be paid by the city or town through the General Fund or the states have the right to garnish the revenue stream. It is a ponzi and those that manage these accounts do not want a lower yield projection-hence higher management fees. There is no price discovery for anything that has yield. Most if not all pensions use ETFs leveraged to the max.

Gotta keep feeding fall street.


Let it Go's picture

The math simply doesn't work. More pensions and promises will be broken so get ready for more pain. This is especially true in the public sector where the 25 largest U.S. public pensions face about $2 trillion in unfunded liabilities. In recent years pension funds have not been able to generate the earnings and high returns that they had predicted because interest rates have fallen and growth has slowed so expect things to get worse.

While it could be said that several ways exist to cheat or rob those who paid into pensions for years it would be an understatement, more ways exist than you could imagine. One reader on another site compared pensions to a Ponzi scheme where benefits are paid out to its investors from new capital paid in by new investors. More on this growing problem below.

monad's picture

No choo choo for Fidel Brown. Charles Manson's new cellie.