As he unveiled a revised state budget this month, Gov. Jerry Brown was peppered with questions about new spending that his fellow Democrats were touting – everything from health insurance for illegal immigrants to universal pre-kindergarten.
There are, Brown replied, “a lot of ideas to do things,” quickly adding, “We’ve done a lot already, and we haven’t paid for what we’ve done.”
Truer words were never spoken. Over the previous 15 years, California had amassed enormous debts under Brown’s two immediate predecessors, Gray Davis and Arnold Schwarzenegger.
The state now owes about $340 billion, with unfunded liabilities for pensions and retiree health care by far the largest pieces. While not all debt was taken on during the past 15 years, it was a period of particularly irresponsible finances.
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State employee and teacher pension benefits were increased on the convenient fiction that investment earnings would pay for them, and pension contributions were actually reduced.
Unemployment insurance benefits were increased without increasing payroll taxes to pay for them, meaning the state had to borrow $10 billion from the federal government when recession hit.
And so forth.
Davis – Brown’s chief of staff during his first governorship – was especially profligate, largely to please the unions that had backed his campaign for the governorship in 1998. As his deficits mounted, he paid the political price by being recalled.
However, Schwarzenegger, while talking a good game about fixing the state’s finances, was in many respects just as bad. He slashed vehicle taxes by billions of dollars on his first day in office, then turned around just a few months later and asked voters to pass a $15 billion bond issue to cover the state’s deficits.
Brown’s budget is studded with reminders of their poor fiscal stewardship.
He wants to pay off the last of Schwarzenegger’s misnamed “Economic Recovery Bonds,” as well as debts to schools, local governments and special funds, and is proposing a painful recovery plan for the State Teachers Retirement System.
STRS was once healthy, but during the Davis years, benefits were increased while the state’s contributions were decreased, leaving it very vulnerable to declines in investment earnings during recession.
STRS has a $70-plus-billion unfunded liability – even with assumed investment earnings that Brown deems “highly unlikely” – and says it needs about $5 billion more a year to regain solvency. Brown’s plan would eventually reach that level, but most would come from school budgets. That idea is already drawing high-decibel protests from education groups.
“To get what (students) need, they need teachers,” Brown said. “Teachers get what they need by having a pension. The pension has to be paid for.”