Editorial: California's budget surplus should be used for massive pension liabilities, not new spending

The Legislative Analyst Office's report predicting the state will have a $7 billion surplus next fiscal year is sure to lead to pushes for costly new programs or expansions of existing ones. Progressive Californians have a pent-up demand for expanded state health and welfare benefits, only starting with a Golden State version of "Medicare for All."

But Gov. Gavin Newsom and the Legislature should resist the urge for new spending — and not just because the LAO warns that $3 billion of the surplus could go away if the Trump administration sticks with new federal rules that would block state taxation of managed-care organizations. They should exercise caution because California's fiscal situation is shakier than the word surplus suggests.

It's not just that an overdue recession can make revenue plunge nearly 20% in a single year, as happened a decade ago. It's that state pension and retirement health care benefits are massively underfunded. Earlier this year, the California Public Employees' Retirement System's unfunded liability was estimated to be $139 billion and the California State Teachers' Retirement System's unfunded liability was put at $107 billion. Unfunded state retiree health care benefits are nearly $86 billion.

The current budget provides $9 billion in additional payments to CalPERS and CalSTRS over the next four years. More such payments and new contributions to the state's $16.5 billion rainy day fund make far more sense than any new spending.

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