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Tuesday, October 18, 2011

California Tax Payers To Get Body Slammed Again

Outlook Goes From Bad To Worse Under CalSTRS Accounting Proposal

And then Worse Again With Union-Friendly Layer Added To Default Process

By Dell Hill

Hat Tip - Doug Ross

There’s little wonder why Californians are leaving the Golden State in Droves.  Businesses being taxed and regulated to the gills and tax-and-spend policy in high gear in Sacramento and not even a hint of slowing down the trend, the last thing those tax payers need to hear is that the true cost of retirement benefits will instantly triple when a recommended new accounting procedure goes into effect.

Dale Kasler, writing at the Sacramento Bee, filed this bitter pill for California tax payers to swallow.

“California's big public pension funds are already short tens of billions of dollars. An organization of accountants is about to make the picture look even worse.

A proposed change to pension accounting standards could give more ammunition to conservatives seeking to reduce pension benefits for public sector workers. Gov. Jerry Brown is expected to issue a wide-ranging proposal to overhaul pensions sometime soon.

As Brown and the Legislature prepare to wrestle over pension costs, an organization that sets the industry standards for how government finances are reported, the Governmental Accounting Standards Board, is proposing new rules for calculating pension fund liabilities – the amount of money such funds owe retirees.

The proposal wouldn't have much effect on CalPERS, the nation's largest public pension fund.  But it would have an enormous impact on the second largest public fund, CalSTRS.

The California State Teachers' Retirement System already faces a funding gap of $56 billion – the difference between the money it expects to have on hand over the next 30 years and what it will need to pay out in benefits during the same period.

The accountants' proposal would triple the gap – on paper – to around $150 billion, said Ed Derman, deputy chief executive officer at CalSTRS.

"It complicates things," Derman said. "People are going to see this other number … and they're going to say, 'Oh my gosh, it's a much bigger problem.' "

Read the entire report from the Sacramento Bee by clicking right here.

I’ve got even more bad news for Ed Derman.  If the anticipated return of 7% doesn’t hold fast - and most economists say the figure will be closer to 4% - then the numbers he’ll be gazing at may have one more comma in the bottom line.

First quarter tax revenue in California suffered a big drop, which also has the numbers crunchers anticipating the elimination of extracurricular events, including sports, for under-performing districts, as well as a possible reduction in the school week from five to four days.

Adding insult to injury; as the L.A. Times reported:  “Gov. Jerry Brown is giving unions most of what they seek.” As the news story reported:

“When the dust settled on Gov. Jerry Brown’s first legislative session in nearly three decades, no group had won more than organized labor, which heralded its largest string of victories in nearly a decade.”  Union leaders were crowing with delight.

For instance, the governor signed a bill that makes it nearly impossible for municipalities to declare bankruptcy, forcing them instead to go through a mediation process that is dominated by union supporters who would oppose bankruptcy at all costs.  Salaries and benefits are consuming such a large portion of city budgets that officials have no choice but to shut down parks and lay off workers.

The unions won’t budge on benefits, so their goal is to make it impossible to abrogate those overly generous union contracts that are the source of the problem.”

Just how long it will before the proverbial “other shoe drops” in California is unknown, but, at this rate, it shouldn’t take too much longer.

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