You can’t make this up. The state of California is going to raid its rainy-day fund just to pay half of one year’s pension-payment shortfall. And this payment isn’t nearly enough to get the pensions on a path to solvency. Where will next year’s shortfall payment come from? How will the principal, let alone the interest, ever be paid back to the Rainy Day Fund?
Let’s start at the beginning. In 2014, Californians passed a voter-ballot proposition in 2014, called the Rainy Day Stabilization Fund; 69% voted yes. This ongoing new tax was sold with these claims:
- Safeguard public schools and infrastructure
- Protect the public from future property tax increases
- Pay down long-term school debt avoid devastating budget cuts
- Requires politicians to live within their means
- Smooth out the boom-bust cycles of the economy on schools and police/fire departments
Who spent the $18 million to get this proposition approved? Government and unions. It turns out that each of the advertised claims were false.
The latest Governmental Accounting Standards Board ruling requires pension plan audits to include retiree healthcare benefits and more realistic investment return assumptions. These changes increased California’s pension liabilities by $172.5 billion. California’s pensions were already underfunded by $228 billion, said another way, the pension fund only has 65% of what is needed to sustainably pay retirees. This jump in debt forces higher annual contribution payment to the state’s pension funds, nearly doubling from $5.8 billion to $11.8 billion a year.
Not so fast Skippy. Where did California get the extra $6 billion to double its pension payment up to $11.8 billion? It will borrow the money from the Rainy Day Fund. The state’s plan to “repay” half of the money it took from The Rainy Day Fund is to relabel the normal ongoing contributions to the Rainy Day Fund as a “repayment”. Um, that isn’t a repayment at all.
This shell game is the OPPOSITE of how the Rainy Day Fund was promised to operate. To be clear: the state politicians can now overspend on anything they want and short change the pension payment. Then steal money from the Rainy Day Fund to pay for the pension payment because it is “an emergency;” and never pay it back. All the while, racking up more interest charges from loans that reduce money available for services from the state. I call this a shell game but it’s really financial fraud to hide financial mismanagement; and partly why the state of California is always in the bottom 3 states for financial standing.