We’ve grown numb to annual budget meltdowns – shortfalls of $20 billion have become the norm. But what is our state’s total debt? Would you believe at least $265 billion?
California’s debt sorts into three buckets:
Budget deferrals, required reimbursements and related debt now total nearly $40 billion. How did “kicking the can down the road” get the state to such a large number? Budget gimmicks to achieve a balanced budget for one year (borrowing from local government, required repayments to public schools and other one-time actions) have added up. As Gov. Jerry Brown highlighted in his budget proposal, most of the budget “solutions” over the past three years “were temporary or failed because of court decisions or faulty assumptions.”
General obligation borrowing is authorized by voters for school buildings, clean water, housing, stem cell research and other expenditures. According to the state treasurer, the total outstanding is $77 billion, the majority of which is for long-term infrastructure investments.
How does this debt compare with those of other large states? On a debt per capita basis, we rank second highest at $2,362, with New York at $3,135. (Texas is the lowest at $520; Michigan follows at $748.)
Debt on general obligation borrowing does offer a bright spot, with debt service peaking in fiscal year 2011, remaining flat through 2016, and then trending consistently downward. That trend could be short lived, however. Voters have already given the state the authority to issue an additional $43 billion in bonds, mostly for transportation, clean air and clean water. And voters can add more debt in upcoming elections.
Pensions and retiree health promises for state workers are an unfunded pension liability (i.e., the amount by which pension promises exceed pension assets) of $96 billion as of June 2009.
However, that figure assumes that those pension funds will increase their assets faster than U.S. investment assets grew in the past century. So, if they earned at the past century’s rate, (which itself was very high historically), the unfunded liability is $256 billion. Using the method employed by Alicia H. Munnell of the Center for Retirement Research and formerly of President Clinton‘s Council of Economic Advisers, the liability is $568 billion.
So how much is the Golden State in the red? At least $265 billion, and perhaps $737 billion, both greater than official state reports suggest.