Although its 2014-15 budget was balanced, California’s state government ended the fiscal year $175.1 billion in the red, thanks largely to state retirement obligations that had to be included in its balance sheet for the first time.
Under new rules by the Governmental Accounting Standards Board, state and local governments must list unfunded pension liabilities as debts alongside the more traditional bonds and other forms of debt.
Counties and other local governments have been rolling out their annual financial reports this year, some showing multibillion-dollar deficits for pension obligations, so the state’s report was not unexpected.
Pension reform advocates have praised the new GASB standards, saying they drive home their point that pension obligations are debts that distort state and local finances.
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The newly revised state data are contained in the “comprehensive annual financial report” that Controller Betty Yee issued on Friday. And she noted in a cover letter that the debts for “postemployment benefits” will jump again in the report for the 2017-18 fiscal year, when state retiree health care must be included under GASB’s rules.
Gov. Jerry Brown’s proposed 2016-17 budget pegs unfunded health care obligations at $71.8 billion, and he has been negotiating new contracts with state labor unions that compel employees to begin paying down those costs, most recently with the California Correctional Peace Officers Association.
“More than 51 percent ($89.9 billion) of the negative $175.1 billion consists of unfunded, employee-related, long-term liabilities that are recognized as soon as an obligation has been incurred,” Yee’s report says, “even though payment will occur over many future periods (net pension liability, net other postemployment benefit obligations, and compensated absences).
“Another 38.3 percent ($67.1 billion) consists of outstanding bonded debt issued to build capital assets for school districts and other local governmental entities. The bonded debt reduces the unrestricted net position; however, local governments, not the State, own the capital assets that would offset this reduction.”
Aside from the employee benefit debts, Yee’s report on the 2014-15 fiscal year is quite positive. It notes that operating revenues, principally income and sales taxes, exceeded spending by several billion dollars, providing a cushion for the 2015-16 fiscal year that followed.
Brown persuaded voters to create a new “rainy day fund” that sets aside some surplus revenues as a hedge against future recessions, and his new budget proposes to increase those diversions. But he faces some opposition among fellow Democrats in the Legislature, who want to increase health and welfare spending.