SACRAMENTO¬†‚?? It‚??s hard to know how heartily to cheer after seeing state Controller¬†John Chiang‚??s new report¬†on California‚??s massive unfunded health-care liabilities for state retirees, and reading the Brown administration‚??s response to it.
Yay. Finally,¬†some high-ranking state official has crafted a detailed plan¬†for dealing with a problem that everyone in the Capitol has known about, and even talked about, for eons. State retirees are living longer lives (as are most Americans), the state doesn‚??t set aside money to pre-fund their health costs, and the fiscal hole is getting deeper.
Fortunately, Chiang ‚?? described jokingly by one reformer I know as the one-eyed man in Sacramento‚??s land of fiscal blindness ‚?? will become state treasurer in January. This way, he can keep up the pressure for reforming this system.
Then again, my enthusiasm is dampened after realizing that nothing has been done about these liabilities for years ‚?? and that the proposed fix is so modest.
Even outgoing Treasurer Bill Lockyer, who was¬†resistant to reform¬†given his close alliance with the public-sector unions,¬†warned in 2011¬†the health-care liability problem was a ‚??time bomb‚?Ě that is even more troubling than the pension problem. That‚??s because California‚??s public-sector pensions are pre-funded ‚?? agencies set aside a percentage of each employee‚??s salary, which is invested in the markets by pension funds.
These system are ‚??underfunded‚?Ě because pension contribution rates are insufficient, public officials have significantly increased benefits in recent years, and the investment earnings have not always matched the pension funds‚?? lofty predicted earnings. But that‚??s better than the retiree health-care system, which is almost entirely ‚??unfunded.‚?Ě
As Chiang‚??s office¬†explained in a statement, ‚??California only pays for retiree health benefits on a ‚??pay-as-you-go‚?? basis, or only covering the minimum amount needed to fund the costs as they are due.‚?Ě The current unfunded liability of $72 billion has grown by $24 billion in just eight years ‚?? and by more than $7 billion in nine months.
‚??This is a liability that has grown over decades of poor fiscal planning and a callous willingness to pass along debt to our children‚??s generation,‚?Ě¬†Chiang said in a statement. His approach is right: legislators need to start pre-funding medical costs. His five-year plan would earmark $250 million in the coming fiscal year, ramping up to $1.3 billion by 2018. Given the size of the problem, those are paltry amounts.
‚??If you plan to save for the kids‚?? college education, getting started is worth some applause,‚?Ě said¬†Dan Pellessier, president of California Pension Reform. He likes the idea, but cautions it really is a small first step. The question is whether the state government can realistically even reach the second step given the realities of Capitol politics.
The money has to come out of the state‚??s general-fund budget. Every legislator has a priority program to fund, and good luck trying to get a piece of the action to pay down a debt that might not turn into a crisis until long after legislators‚?? careers are over.
The Brown administration is¬†taking the report seriously. ‚??(W)ithout action, (the retiree health liability) will continue to grow by billions of dollars,‚?Ě the administration said, and the governor pledged to ‚??put forward a plan to address this unfunded liability ‚?¶ when he submits his budget to the Legislature next month.‚?Ě
But I‚??m holding back applause, given the statement‚??s opening line: ‚??Two years ago, Gov. Brown spearheaded sweeping reform of the state‚??s public employee retirement system. This past year, his budget began to address the unfunded liability in the state‚??s teachers‚?? retirement system.‚?Ě
Frankly, if those two ‚??fixes‚?Ě are the model for retiree health care, it‚??s best not to expect too much. The governor‚??s ‚??sweeping‚?Ě pension reform imposed a slightly lower formula for new hires, and the California Public Employees‚?? Retirement System recently¬†undermined its signature anti-spiking provisions. The¬†plan to boost the teachers‚?? fund¬†only pitches in a¬†relatively small amount of state money in the short term¬†‚?? and relies heavily on higher contributions from school districts.
They are fine as far as they go, but excuse me if I withhold the standing ovation for the finale.
Steven Greenhut is the California columnist for U-T San Diego. Write to him at¬†email@example.com