Tuesday, October 18, 2011

Deadbeat Alert: CalSTRS, San Diego Unified Are Out of Money

File this one under "I am Jack's complete lack of surprise": yet more agencies of government in California are about to run out of money. First, Voice of San Diego reports that the San Diego Unified School District is on the edge of insolvency. The reasons for this should be familiar to observers of this state's politics; salaries and benefits have continued to escalate while funding from Sacramento has shriveled, and the education trailer bill in the state budget prevented the district from laying off teachers in advance of mid-year "trigger" cuts. As such, a takeover by the state may be in the works. In exchange for a loan from California's taxpayers to keep its bills paid, the district will relinquish all local control of its schools to Sacramento. The superintendent will be fired and the school board stripped of all real authority, and parents and students will have to trust that an unelected state administrator will be more responsive to their needs. In other words, it's pretty much a losing proposition for everyone save a few bureaucrats in the state capital.

That's pretty alarming, but it's nothing compared to the noises coming out of the nation's second-largest pension fund, CalSTRS. If the Governmental Accounting Standards Board goes through with new rules for reporting unfunded liabilities, the retirement fund for California's public school teachers could see its 30-year unfunded liability triple from $56 billion to roughly $150 billion. Mind you, CalSTRS officials don't see that as a serious problem; to their thinking, they're well on their way to closing the gap back up. But they're worried people might be freaked out by the size of the number. Says Alan Milligan, CalSTRS' chief actuary, "There's going to be a perception problem – what is the cost of the pension system?" Um, yeah. Local governments, and ultimately taxpayers, are going to have to make up whatever shortfall the fund's investments don't. If that shortfall gets massively larger, it's going to break the budgets of those governments. It's actually slightly more serious than a "perception problem."


  1. RobOct 18, 2011 03:08 PM
    Many years ago, in the wake of Bob Citron's disastrous (and illegal) fiscal manipulations and Orange County's subsequent bankruptcy, the Times could barely contain their glee. We were told this was all the consequence of a narrow-minded adherence to low-tax conservatism that eventually came a-cropper.

    I wonder what they'll blame when it's deep blue political monoculture LA County that goes into Chapter 9.
  2. GSLOct 18, 2011 03:18 PM
    True. The OC bankruptcy had nothing to do with conservatism or even taxes.

    Not sure how quickly that might happen to LA County. But to your point, I'm not sure what the storyline will be when San Jose goes into Chapter 9, which could happen in a couple years.
  3. JustinOct 18, 2011 05:23 PM
    They'll blame the same kind of people. They will just be more creative in their "reasoning".
  4. GSLOct 19, 2011 06:51 AM
    I wonder. When Vallejo went bankrupt, it was a case of a solidly Democratic town enriching their public employees in the face of economic reality. The press reaction to that was basically, "hey, how about those Raiders?" No analysis necessary, I guess.
  5. JustinOct 19, 2011 10:52 AM
    You know the old saying: As goes Vallejo, so goes... Actually, I might be misremembering it.
  6. GSLOct 19, 2011 11:22 AM
    It's quite a town these days, as this story shows.
  7. AnonymousOct 19, 2011 12:32 PM
    no one bothers to ask or consider how a multi-hundred billion dollar state pension system is so disastrous and crippling to the economy since it sucks out humongous capital from the rest of the market such as investments, expansion, increased output, R&D, etc etc...It completely crowds out private investment
  8. GSLOct 19, 2011 12:35 PM
    Pretty much. That's the dirty secret about assuming 7.75% returns on investment every year: CalPERS and CalSTRS are so big that they can't "beat the market." By definition, you can't beat the market if you are the market.