How does it feel knowing that your pension is tied to the success or failure of the high-speed rail project?

 Both the short and long term health and viability of California’s State and Local Pension Funds are tied directly to how California deals with its other massive debt obligations. It has been widely reported that California Public Sector Pensions Systems (most notably CalPERS and STRS) have “unfunded liabilities in tens of billions of dollars.” Governor Jerry Brown’s office recently estimated that the State’s unfunded pension debts could be over 45 billion dollars and unfunded retiree healthcare costs to be almost 60 billion dollars. Not surprisingly, independent estimates of the pension funding gap in California approach half a trillion dollars depending on assumptions of future investment earnings. That means California state and local governments have promised to pay pension and retiree healthcare benefits of many tens of billions of dollars than they actually have money for.

While these numbers are huge, California pension and retiree healthcare debt amounts to only half of California’s debt obligations. First there are formal bonds. California voters approved over 130 billion dollars of general obligation bonds, of which 73 billion are still outstanding. California has to pay those back over the next 30 years. Local redevelopment agencies have run up over 100 billion dollars in debt that must be repaid at the local government level, all of it with interest. Then local governments and school districts have billions more in non-redevelopment debt that will have to be repaid. Then there are miscellaneous billions. For example, the state owes the federal government 10 billion dollars in loans to cover shortfalls in the Unemployment Insurance Fund. That’s right, giving people up to two years of unemployment benefits after they have lost their jobs costs a lot of money.

All of these debt obligations have one thing in common: They will be looking for the California taxpayer to bail them out. How far the taxpayer can be pushed is subject to debate but I suspect it is not much further. Governor Brown acts as if it is a done deal that California voters will approve a tax increase on the wealthiest Californians this November. Don’t be so sure.

California’s debt crisis and federal debt crisis (which drawfs California’s) is nothing new. Many countries throughout the world have experienced similar debt crises, some repeatedly, over the last few hundred years. Let’s compare Europe. Specifically, Britain. Britain, like many European countries has an economy that is sinking under a mountain of debt that has angered its people. Britain has faced similar problems a number of times. Most notably 200 years before between 1820 and 1830 when journalists complained that Britain was failing under a corrupt Parliament, an unprincipled government and an economy sinking under a mountain of debt. Many Britains argue the same is true today. Britain and other countries imposed severe austerity measures (sound familiar?), which made people mad. It is no fun when the party ends. Those mad people acted out in a variety of ways, ranging from protesting to burning down towns. A bloody revolution happened in France that killed tens of thousands. Britain experienced a different kind of revolution – a radical change of government including electoral reform. Britain’s government in 1830 underwent a transformation of both the leadership and ideology. Britain avoided a revolution and massive blood shed that occurred in France by racially changing its government.

The big question for our time is whether the two major political parties are capable of a similar regeneration. In recent years, democrats and republicans, both at the state and national level, have been wholly unable to collaborate on any important issues. Partisan gridlock will have to stop or the mountain of debt is likely to crush both parties.

In California, the starting point in taking steps to insure that California can meet its pension obligations is to recognize and acknowledge the problem. I’m amazed on almost a daily basis the fact that many people believe that half a trillion dollars of crushing debt is not a problem. Somehow it will go away and their cushy lives will go on uninterrupted. How big is this debt crisis really? How much debt does California have to deal with over the next 30 years? Is it 500 billion dollars, a trillion, or more? All progress starts with telling the truth, and in this case, the first utterance of truth must be recognition that we are dealing with a debt crisis that will take radical and painful steps to remedy. When that occurs, California can start making progress.