On one point, almost everyone agrees: California, its counties, cities and special districts face a shortfall in their pension fund liabilities for public retirees.
But many disagree, however, on how big the deficit is and how to solve it.
At Thursday’s 18th annual Sonoma State University Outlook Conference co-sponsored by the Business Journal, former state Assemblyman and Stanford University Professor Joe Nation laid out a stark forecast.
A recent study he oversaw at Stanford noted that the state has acknowledged an unfunded liability of $104 billion. But when assumptions of investment returns of 8 percent are brought down to more conservative levels, the deficit soars to $579 billion.
Why is this important to California residents?
“Because people are going to begin to see significant cuts to services” as public entities are forced to shift more of their revenue to cover these legally binding liabilities, Mr. Nation said.
Mr. Nation’s clarion call has not made him popular with many public officials and employee unions.
But even if he is only half correct about the potential shortfalls for which taxpayers are on the hook, the figures are staggering. He noted that CalPers’s own calculations show that as of 2010, the market value of the retirement system’s investments was one third below its liabilities.
Now, only a very few voices on the fringe of the pension debate are suggesting that public entities renege on promises that have been made to those at or near retirement.
But for new employees and perhaps those just a few years into their careers, is it unreasonable to begin to migrate them into self-directed 401(k)-type plans that have become the norm in the private sector?
The good news is that the three county administrators who presented Thursday, Nancy Watt from Napa, Matthew Hymel from Marin and Veronica Ferguson of Sonoma, are all looking at alternatives to the currently unsustainable plans.
As Mr. Hymel pointed out, real change at the local level will require broad legislation from Sacramento where the rules of the system are made. We urge the Legislature to do so.
But, clearly, doing nothing threatens the pensions of all public employees and their communities.