For a state talking about “Calexit” and boasting about the vibrance of its economy and its non-Trumpian politics, the pensions crisis is a highly inconvenient reality. The state’s finances aren’t in as good shape as they appear on paper, its governance isn’t sustainable (you can’t keep giving public sector workers benefits raises ad infinitum), and its leaders don’t seem serious enough to even acknowledge the magnitude of the problem.The numbers CalPERS expected are, well, absurd. Mead quotes from a Reuters piece that lays it out:
California Public Employees' Retirement System expects a 5.8 percent annual investment return under its new portfolio asset allocation, significantly lower than the fund's assumed rate of return of 7 percent by 2020.Do you get a 7% rate of return? It's difficult to see that happening. Back to Mead:
The reduced expectation, disclosed late Monday in documents from the largest U.S. public pension fund, is based on a lower-risk, lower-return asset allocation adopted by CalPERS in September and announced in December.
CalPERS' caution mirrors outlooks from public pension funds across the United States as they try to grapple with investment forecasts of slow market growth over the next decade.
California has vibrant industries and a large tax base, but people and companies can move to less costly states. Increasingly, many of them are doing just that—take out immigrants, and California has experienced a net exodus in recent years. The aging population exacerbates the pensions crisis. Fewer working people as a percentage of the population will hurt the tax base and make it even harder to fund pensions.California will be coming, hat in hand, to Uncle Sam in due course. Uncle Sam has no money, either, and California will be standing in line with Illinois, New Jersey, and a bunch of other states that made promises they can't keep. Maybe the 9th Circuit can make some arrangements.