California pension plans would get an ‘unprecedented’ boost in Newsom’s budget. Here’s how
Gov. Gavin Newsom said last week that his budget would put $11 billion toward California’s retirement debts, a sum he called “unprecedented.”
That’s true. But California voters deserve much of the credit for this portion of fiscal prudence in the governor’s budget.
Newsom referenced $11.3 billion that would be allocated to the state’s long-term debts under Proposition 2, a 2014 ballot measure backed former Gov. Jerry Brown, according to information Finance Department spokesman H.D. Palmer provided in emails.
The proposition requires the state to deposit specified amounts of general fund revenue into a reserve account known as the rainy day fund, and, when capital gains tax revenues are large enough, to pay down long-term liabilities. The proposition remains in effect until 2030.
The $11.3 billion for debts, carved out of a surplus Newsom estimates to be $76 billion, would be allocated to CalPERS, CalSTRS and a retiree health insurance fund over four years, according to information provided by Palmer.
The value of the California Public Employees’ Retirement System investment fund stood this week at $459 billion. It administers pensions for some 1.9 million California government workers and retirees.
It has an unfunded liability that was last reported at $167 billion. The unfunded liability is the difference between what CalPERS owes over the long term and the assets it has now.
The state puts money toward that debt each year under a plan to pay it off by the mid-2040s. Newsom’s budget dedicates $7.4 billion in Prop. 2 money — on top of what the state would normally pay — toward the long-term CalPERS debt over four years.
The proposal, which requires approval from the Legislature, would pay an estimated $1.9 billion toward CalPERS debt next year. Paying that money down early will save at least $3.8 billion over the next 30 years, according to Finance Department figures.
The rest of the money would be divvied up as follows:
▪ $1 billion toward the $105 billion unfunded liability at California State Teachers’ Retirement System, which was recently valued at about $300 billion. CalSTRS administers pensions for about 1 million teachers and retired educators.
▪ $1.9 billion toward a trust fund for state retirees’ health care. A $12.5 billion trust fund supporting the benefits is scheduled to be fully funded by 2046.
▪ About $1 billion to pay off a 2017 pension loan the state took out in 2017.
The allocations depend on estimates of revenue for the years ahead, including the fiscal year starting in July, and so will likely change.
The Prop 2 pension debt payments would be made in addition to the state’s regular payments to CalPERS and CalSTRS next year, which, according to the governor’s budget proposal, total about $9.2 billion.
Newsom had planned to pay down pension debts in his first budget, in 2019, which called for applying $2.5 billion toward the state’s long-term CalPERS pension debts.
About $100 million was used for that purpose, but last year, when budget projections forecast a $54 billion deficit, Newsom diverted most of the remaining $2.4 billion away from optional long-term debt payments and used it for the annual payments the state has to make to CalPERS.
This story was originally published May 21, 2021 at 5:25 AM.