EDITORIAL: Sacramento politicians play Santa Claus while pension problem gets worse

Orange County Register (CA)

April 24-- Apr. 24--Sacramento wants to raise taxes -- on just about everything, it seems. But the tax hikes seem primarily geared toward fueling more spending and new obligations, with little interest among state legislators in getting a grip on existing challenges.

And while politicians in the state Capitol are busy dreaming up new programs, new extensions of current programs and new taxes, the state's pension problems only continue to get worse.

It's a problem that any state official will acknowledge if pressed on it, but which few are willing to ever actually do anything about.

But ignoring the problem won't make it go away. The latest report on the California Public Employees' Retirement System alone shows California state government must cough up $7 billion to cover the cost of the pension bill for the next pension bill -- an increase of more than $650 million over the current fiscal year.

Blame the unfunded debt service CalPERS has the state on the hook for. It's up $340 million, a scary number for a fund that's already missing around a third of what it needs to cover its costs. And even that is assuming CalPERS can rely on meeting its investment return targets as the nation closes in on the longest period between recessions in contemporary history.

To be fair, some attention has been directed at the state's pension problem. The governor's office requested through its budget sizeable extra payments on the state's pension debts. And a pension-curbing bill former Gov. Jerry Brown OK'd seven years ago should save tens of millions in 2020 compared to what would've happened without it.

But Sacramento hasn't signed off on the $3 billion payment yet, and CalPERS remains under constant pressure to reduce its investment options for ideological reasons -- such as coal, guns, tobacco and other politically incorrect industries. And, of course, CalPERS is just one part of the pension problem, which CalSTRS also contributes to.

One way to avoid a situation where California raises taxes and the pensions crisis grows worse is to make more money off fund investments. CalPERS has identified its targeted annual return at 7% -- a number significantly higher than its 5.1% annualized return over the past five years.

But the economy has been so hot that it's hard to see where such a significant upside could be found. And if the economy contracts anytime soon, California's huge income tax base could take a huge hit, pushing the state back into a much broader debt crisis.

The solution? Curb tax hike enthusiasm, curtail new spending obligations, ensure that existing resources are being used effectively and keep further pension reform on the table. Lawmakers should learn that lesson now, before it's too late.

As politically challenging as this might be, political convenience shouldn't be the mediator of responsible governance. While appeasing public sector unions and playing Santa Claus with the public's money is easy, that approach to government only risks the future of more public employees while saddling future generations of Californians with high taxes and little flexibility in redirecting resources.

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