Like the mystics and statistics say it will
I predict this motel will be standing until I pay my bill
-- Warren Zevon
Hell-raising rock and rollers aren't usually actuaries, but as California's bills start to come due, the artist has a point:
California cities and counties will see their required contributions to the largest U.S. pension fund almost double in five years, according to an analysis by the California Policy Center.As Walter Russell Mead points out, the expected rate of return was pretty high:
In the fiscal year beginning in July, local payments to the California Public Employees’ Retirement System will total $5.3 billion and rise to $9.8 billion in fiscal 2023, according to the right-leaning group that examines public pensions.
The increase reflects Calpers’ decision in December to roll back the expected rate of return on its investments. That means the system’s 3,000 cities, counties, school districts and other public agencies will have to put more taxpayer money into the fund because they can’t count as heavily on anticipated investment income to cover future benefit checks.
Calpers has concealed the depth of the pension shortfall by using unrealistic rates of return in its accounting estimates. But to stay solvent, it was recently forced to cut its projected rate from 7.5 percent to 7.375 percent (with more reductions almost certainly on their way). The state will need to make up the difference with tax increases and austerity.So if the actual rate of return turns out to be more like, say, 5 percent? Good luck. We have looming pension crises in a lot of places. And if California imagines that some other entity is going to make up the shortfall, they are sadly mistaken. The printing presses at the Fed are still running full bore and it's not going to be enough.