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Stanford University claims that the CalPRS under funded liability is around $525 billion--totally unsustainable.
A new study, by an advisor to Gov. Arnold (and the man promoting the $200 billion High Speed choo-choo train) says the real number is $2.5 TRILLION.
"Due to Alice in Wonderland accounting methods, the amount that taxpayers owe to provide pensions for local and state government employees is much larger perhaps an extra $2.5 trillion than government officials have let on, according to an economic advisor to Gov. Arnold Schwarzenegger speaking at a Securities and Exchange Commission (SEC) hearing in San Francisco on Tuesday.
State and local governments utilize a misleading method for reporting the size of public pension obligations, said David Crane. For example, an annual obligation of $30,000 for 25 years for a government employees pension is projected to cost the government $320,000, while the same $30,000/year, 25-year obligation in the form of a bond is projected to be $425,000. Two identical and unconditional obligations owed by the same government are valued at different amounts. The answer lies in the Alice in Wonderland world of government pension accounting that allows governments to hide liabilities.
Government officials justify the lower obligation for the pension based on the earnings they hope to receive by investing the money."
CalPRS by claiming higher returns on investments can "lower" the unfunded liabilities.
"As a result of Alice in Wonderland accounting, state and local governments are understating pension liabilities by $2.5 trillion, according to the Center for Retirement Research at Boston College. Note that these are not like Social Security and Medicare liabilities. These are contractual liabilities that cannot be changed, even by state legislatures or Congress.
Because government officials are able to hide their future debt obligations in this way, they are perversely incentivized to assume the highest rates of return in order to minimize reported liabilities, and then to swing for the fences in investing the capital of those funds in the hopes of actually achieving those returns, producing even more risk for the taxpayers who must make up for any pension fund shortfalls, he said."
Why will California stay in a Great Depression for a generation? The disaster is because government refuses to tell the truth. And we pay the bill.
More...
A new study, by an advisor to Gov. Arnold (and the man promoting the $200 billion High Speed choo-choo train) says the real number is $2.5 TRILLION.
"Due to Alice in Wonderland accounting methods, the amount that taxpayers owe to provide pensions for local and state government employees is much larger perhaps an extra $2.5 trillion than government officials have let on, according to an economic advisor to Gov. Arnold Schwarzenegger speaking at a Securities and Exchange Commission (SEC) hearing in San Francisco on Tuesday.
State and local governments utilize a misleading method for reporting the size of public pension obligations, said David Crane. For example, an annual obligation of $30,000 for 25 years for a government employees pension is projected to cost the government $320,000, while the same $30,000/year, 25-year obligation in the form of a bond is projected to be $425,000. Two identical and unconditional obligations owed by the same government are valued at different amounts. The answer lies in the Alice in Wonderland world of government pension accounting that allows governments to hide liabilities.
Government officials justify the lower obligation for the pension based on the earnings they hope to receive by investing the money."
CalPRS by claiming higher returns on investments can "lower" the unfunded liabilities.
"As a result of Alice in Wonderland accounting, state and local governments are understating pension liabilities by $2.5 trillion, according to the Center for Retirement Research at Boston College. Note that these are not like Social Security and Medicare liabilities. These are contractual liabilities that cannot be changed, even by state legislatures or Congress.
Because government officials are able to hide their future debt obligations in this way, they are perversely incentivized to assume the highest rates of return in order to minimize reported liabilities, and then to swing for the fences in investing the capital of those funds in the hopes of actually achieving those returns, producing even more risk for the taxpayers who must make up for any pension fund shortfalls, he said."
Why will California stay in a Great Depression for a generation? The disaster is because government refuses to tell the truth. And we pay the bill.
More...