California’s next generation got some good news recently when Assembly Speaker John Perez called upon lawmakers to act this year to find a solution to the state’s largest fiscal issue -- the $80 billion unfunded liability of the teacher pension system.I keep hearing that "as California goes, so goes the nation". You'd better hope not.
Perez’s urgency was in contrast to the timeline proposed by Governor Jerry Brown, who in January acknowledged the severity of the crisis but suggested a solution be put off until next year.
Perez cited one pressing reason for immediate action: the teacher pension debt is growing by $22 million per day. But there’s another reason that politicians in California never discuss: If they don’t act, the obligation will end up costing more than twice as much as it would if they took immediate action. That’s because, in the absence of action, the teacher pension debt will be subject to the same rules as a zero-coupon bond...
That obligation functions exactly like a zero-coupon bond. In both cases, cash payouts are promised for the future, though insufficient provisions are made to meet that obligation. In both cases, the single, final payment is many times the debt.
Some money has been set aside for teacher pensions in California but not nearly enough, and the state is already short $80 billion. But that is merely the value of the liability today. Unless cash is set aside, the shortfall will continue to grow zero-coupon style -– until it reaches more than $600 billion when the debt comes due in 2043.
To put that sum in perspective, it is 13 times the amount California’s general fund will devote to K-12 education this fiscal year and 11 times the amount that general fund will spend on everything else. Even if general fund revenue rises at a healthy pace until 2043, $600 billion will be the equivalent of two to three times the state general fund's spending that year.
To prevent a fiscal apocalypse, last year the California State Teachers' Retirement System asked Brown and the State Legislature for a 30-year cash injection of $240 billion, starting with $4.2 billion a year. But so far Brown’s budgets haven’t set aside a penny. As a result, the teacher pension debt has grown more than $25 billion since he assumed office in 2011.
Monday, March 03, 2014
My Future Is In Such Good Hands
Essentially, I'm screwed: