Will CalPERS be the end of California?

The state of California is facing ever mounting financial struggles. One of the main sources of the state's budgetary shortfalls have been the enormous unfunded liabilities of its pension funds. Both the state's public employee pension fund, CalPERS and it's teacher's retirement fund, CalSTRS are approximately 64 percent funded. While this is far better than some of the veritable disasters, seen in states like Illinois, it is, nonetheless, putting immense pressure on the budgets of a state that is already straining under the burden of every increasing poverty, a diminishing tax base and flight of the productive class, due to skyrocketing housing costs.

A storm is brewing

The public employee unions have mounted a full frontal assault on any effort to reign in out-of-control pension liabilities. They have gone so far as to attempt to block public votes from taking place that would allow the citizens of the state to decide if new state employees should have reduced pension benefits. It doesn't help that the state of California is effectively controlled by the Democratic party. In many regions of California, Democratic politicians run essentially unopposed. Since these politicians rely on the public employee unions for funding and votes, this has created another obstacle to any real progress being made in bringing down the amount of unfunded liabilities.

But now the chickens are coming home to roost. A recent report by a team of academics stated that, within three years, most of California's public school districts will be forced to begin making deep cuts to their operational budgets. This is, in large part, a result of an ever-increasing proportion of those schools' budgets going to cover existing pension liabilities. But the report also hinted at a potentially even larger problem with the ability of the state's schools to remain solvent into the future.

Throughout much of California, the costs of living have been dramatically increasing over the last few decades. In places like Palo Alto, the public school system is in a virtual tailspin, as it rapidly loses the low income student, who make up the bulk of its student body, as a result of ever-rising costs of living, coupled with stagnating wages. But these schools still have the same liabilities. And public school systems are notoriously bad at de-scaling. The question will be whether steadily decreasing student populations will eventually lead to a totally unsustainable funding situation for the state's pensions. If it does, California may be looking at bankruptcy.



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