In summary
California is expected to spend about $8.7 billion on state employee pensions next year. Gov. Gavin Newsom hopes to offset some of that cost by repurposing previously scheduled debt payments.
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Larger-than-expected pay raises for California employees are driving up the cost of public employee pensions, according to the California Public Employees’ Retirement System.
But Gov. Gavin Newsom plans to save money that would otherwise have to go into retirement systems for a year.
He wants to use the money he set aside 10 months ago to pay off CalPERS debt to pay for some of next year’s state employees’ pension costs instead.
This would save the state’s general fund $1.7 billion and is a small but important part of Newsom’s plan to manage California’s dire budget deficit.
There’s one problem. The Office of the Independent Legislative Analyst wrote about Newsom’s pension plan:looks unconstitutional” because it relies on previously scheduled debt payments.
Newsom’s accounting changes mean that California Pay off debt to comply with proposition 2, a 2014 ballot measure meant to clean up the state’s fiscal chamber. The bill would require states to make additional debt payments through 2030, even in years with deficits. Recently, Newsom has used Proposition 2 payments to: Gradually reduce the country’s large pension debtThis includes the $1.7 billion portion allocated to CalPERS debt in the current budget.
The analyst’s office said the governor’s new proposal would use the planned debt repayments to “replace, rather than supplement, what the state must provide to CalPERS in 2024-2025.” In this sense, it is argued that Proposition 2 is violated.
The Newsom administration has a different view. “Simply put, it is the administration’s position that this proposal is compliant with Prop. 2,” said Treasury Department spokesperson HD Palmer.
Details about how much California will spend on state pensions next year, whether or not lawmakers follow Mr. Newsom’s proposal, are being laid out. CalPERS Trustee of the Week.
In total, annual claims are expected to reach $8.7 billion. That’s the reason for the raise that boosted his state salary by about 4.7% last year, giving him nearly 2% more than CalPERS expected. The wage increase would increase state pension revenue by about $124 million.
CalPERS is based on employee wages, how much workers contribute to their pensions, how much the state puts in, how much income is expected to be earned over the long term, and how much additional money is needed to repay past investment losses. The total is calculated every year.
CalPERS owes even more money. Over time, the benefits will be greater than they are now. As of June 30, it had 72% of the assets needed to pay all outstanding benefits.
Civil servants do not have to put money aside from their paychecks for the fund’s past failures. For example, a California Highway Patrol police officer puts 13.5% of his salary toward retirement benefits. Meanwhile, the state will pay CHP employees an amount equal to 71% of their salaries next year, both as pensions and as compensation for past losses.
