California has so overspent for decades, pumping out ever more bond issues because of course more debt is always the best way to pay off existing debt and prosperity is just round the corner, that it now has a negative net worth of $127 billion, according to the state auditor. Yet incredibly the auditor’s numbers do not include unfunded public pension retirement and health care liabilities. Thus the actual negative net worth is probably hundreds of billions more.
Would someone please explain why cities, states, and the federal government are allowed to make up financial numbers? Oh wait, private companies do that too, reporting non-GAAP earnings as if they had any relation to reality. “Our profits last quarter would have been $1.5 billion if extraordinary expenses had not occurred related to our manufacturing plant blowing up, the treasurer being arrested for embezzling $100 million, and the IRS saying we owe $250 million in back taxes.” Right. California continually pretending it doesn’t have ginormous unfunded pension liability is no different from a company reporting non-GAAP earnings as if they were real. The numbers are manufactured, made up, and essentially fraudulent.
The list of long-term obligations did not include the much-disputed unfunded liabilities for state employees’ future pensions, nor the $60-plus billion in unfunded liabilities for retiree health care. The Governmental Accounting Standards Board and Moody’s, a major bond credit rating house, have been pushing states and localities to include unfunded retiree obligations in their balance sheets and were they to be added to California’s, it could push its negative net worth down by several hundred billion dollars.
CalPERS and CalSTRS are the big public state pensions. New rules are forcing them to be more realistic about their liabilities yet they remain evasive. Further, cities like Los Angeles, San Francisco, and San Jose spend over 20% of their budget on pensions, and they can’t really afford to do it.
The biggest problem for California is the CalPERS system. California Healthline wrote in May 2014 that “CalSTRS still has a $73.7 billion unfunded liability, while CalPERS includes $64.6 billion in liabilities.” That figure, however, is not even close to the truth.
CalPensions gave the real numbers for CalSTRS, writing “New government accounting rules will more than double the pension debt reported by CalSTRS, boosting an ‘unfunded liability’ that is now about $71 billion to a newly calculated ‘Net Pension Liability’ of $166.9 billion.
“There are several ways to view the size of the issue at the state level. California carries the largest unfunded liability in total dollars at $754 billion, followed by Illinois at $331.6 billion and New York with $307.9 billion”