Dan Walters

Dan Walters

Dan Walters: California could owe $1 trillion

Published: Sunday, May. 12, 2013 - 12:00 am | Page 3A
Last Modified: Sunday, May. 12, 2013 - 7:33 am

There's absolutely nothing wrong, per se, with incurring debt, whether it's by families, businesses or governments. A functional credit market is absolutely vital to a modern economy.

"Functional," however, means not taking on debt beyond a reasonable capacity to repay. We just experienced a wrenching example of dysfunctional borrowing.

Mortgage bankers loaned too much money to too many unqualified homebuyers. California was hit especially hard by the inevitable meltdown, suffering the worst recession since the Great Depression.

Given that experience, we should be particularly leery of debt. But California's state and local governments have amassed an immense amount of debt in recent years. Two cities have already sought bankruptcy protection because of debts they ran up during the go-go days before the housing bubble burst.

The California Public Policy Center, a conservative policy think tank, recently issued a comprehensive report on state and local debt – not only formal bonds, but borrowing from special funds to cover budget deficits, borrowing from the federal government for unemployment benefits and, most important, unfunded liabilities for retiree pensions and health care.

Its total from official records is $648 billion, closely approximating what yours truly also had calculated earlier.

It includes about $265 billion in unfunded pension and retiree health care obligations. But those official estimates assume that pension trust funds will earn more than 7 percent a year – a "discount rate" that has been questioned by many authorities as unrealistically high.

Lowering it by several points would add several hundred billion dollars to the debt total, raising it to or even above $1 trillion.

That higher potential figure is the equivalent to $25,000-plus for every Californian and half the state's annual economic output.

Bankruptcy filings by Stockton and San Bernardino have drawn much-needed attention to the ticking debt time bomb, as has the California Public Employees' Retirement System's 50 percent rate hike, and the California State Teachers' Retirement System's need for $4.5 billion more a year to maintain solvency. CalSTRS' plea, however, is being ignored, while Capitol politicians seem bent on piling up more debt.

Gov. Jerry Brown makes much of the "wall of debt," a relatively paltry $30 billion in accumulated budget deficits. Yet he wants to borrow nearly $10 billion for a questionable bullet train project, he and other politicians are writing a new water bond issue, and school groups seek a big bond issue for their projects.

The city of Sacramento, meanwhile, wants to hock its parking revenues for a new basketball arena.

How much debt is too much? It's high time that question was asked – and answered.

Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters. Follow him on Twitter @WaltersBee.

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Read more articles by Dan Walters

Dan Walters, political columnist

Dan Walters

Dan Walters has been a journalist for more than a half-century, spending all but a few of those years working for California newspapers. At one point in his career, at age 22, he was the nation's youngest daily newspaper editor.

He joined The Sacramento Union's Capitol bureau in 1975, just as Jerry Brown began his first governorship, and later became the Union's Capitol bureau chief. In 1981, Walters began writing the state's only daily newspaper column devoted to California political, economic and social events and, in 1984, he and the column moved to The Sacramento Bee. He has written more than 7,500 columns about California and its politics and his column now appears in dozens of California newspapers.

Email: dwalters@sacbee.com
Phone: 916-321-1195
Twitter: @WaltersBee

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