Down Debt

CA budget surplus could lead to advance payments from CalPERS

California will reduce its long-term debt in the coming fiscal year with an additional retirement payment of $ 3.5 billion, according to Gov. Gavin Newsom’s budget proposal.

The state will contribute the money to California’s public employee retirement system in addition to a regular payment of $ 8.4 billion for state employee and retiree pensions, according to the proposal.

Newsom highlighted the pension payments at a press conference Monday on its budget proposal estimated at $ 286.4 billion for the fiscal year that begins July 1.

The additional payment of $ 3.5 billion in pension liabilities will save the state at least $ 7 billion over the next three decades, according to the budget proposal.

Taking advantage of a stock market boom, CalPERS has made enough money on its investments over the past fiscal year to significantly improve its long-term budget position. In July, the system had about 80% of the money it would need to cover all of its long-term debt, up from 71% a year earlier.

The pension system, with an investment fund valued at $ 493 billion last week, bills the state and other public employers every year as part of a plan to pay off debts and achieve full funding by the mid-2040s.

The state has completed its payments over the past four years under the provisions of Proposition 2, the 2014 voting initiative backed by former Gov. Jerry Brown. The measure forces the state to spend money on debt and a rainy day fund each year.

The state has made $ 12.7 billion in additional payments to CalPERS and CalSTRS over the past four years, and would pay approximately $ 6 billion more to CalPERS in fiscal year 2025-2026 according to current projections, according to the budget proposal.

California will contribute $ 3.7 billion to the California State Teachers’ Retirement System in the next fiscal year, according to the proposal. But at CalSTRS, which also reported a significant ROI for the year ending July, the return means the California State Government’s obligations to the system’s unfunded liabilities could be phased out in three years, well ahead of the previous target date of 2046. Schools are still expected to continue contributing to pension debt until 2046.

CalSTRS, valued at $ 320 billion in November, expects to reach 80% funding in 10 years and 100% funding in 2041, five years ahead of schedule, according to information presented at a meeting of the board of directors in November.

Still, big losses in the years to come could send the numbers in the wrong direction, pushing up government debts.

“We are far from the quicksand of public pensions,” said Senator Steve Glazer, D-Orinda.

He said retirement debts are so large that the state should consider creating a separate retirement savings account amid budget surpluses of tens of billions of dollars. Newsom’s office projects a surplus of $ 45.7 billion in the next budget year after an $ 80 billion surplus in the current budget.

Glazer backed Newsom’s proposals to pay off pension debt earlier than expected.

“Public employees have won the right to a pension and we must honestly and fully assume this mutual commitment,” he said.

The budget proposal also calls on the state to commit $ 365 million of Proposal 2 funds to health care benefits for future retirees.

Monday’s budget proposal was preliminary and will be revisited in May with updated income figures and projections. Then the legislature and the governor must agree on a final spending plan.

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Wes Venteicher presents the popular cover of The Bee’s State Worker in the newspaper’s Capitol Office. It covers taxes, pensions, labor, state expenses, and the California government. Originally from Montana, he reported on healthcare and politics in Chicago and Pittsburgh before joining The Bee in 2018.