SACRAMENTO (AP) — California faces $340 billion in debts, or more than $8,500 for each of its 38 million residents, the nonpartisan Legislative Analyst’s Office said Wednesday in recommending that the state set priorities for paying down its key long-term liabilities.

The state should first address the $73.7 billion shortfall in the teachers’ retirement system, a debt that could cost the state, teachers and school districts a combined $5 billion a year to resolve over 30 years. Without changes, the system serving 868,000 members is projected to run out of money by 2046.

Paying down the $64.6 billion shortfall in health benefits for 277,000 retired state employees and their dependents should come next. That could cost the state $1.8 billion a year over 30 years, the analyst said, but getting started sooner would dramatically reduce costs over the long run.

The report comes a month before the state’s budget is due and feeds legislative debates over whether the state should spend or save its budget surplus and how to create a rainy day fund that would go before voters in November for their approval. It was released a week before Gov. Jerry Brown unveils his revised budget recommendations.

“I think it underscores what the governor has said for quite some time, which is that we have significant liabilities that we need to address,” said H.D. Palmer, a spokesman for the state Department of Finance.

The department’s latest figures, for March, show revenues coming in $1.4 billion higher than they were forecast through the first nine months of the fiscal year that began July 1. But the department says much of the growth is from the highly volatile capital gains tax and projects that it will level off next year.

“We know from painful history what happens when you spend one-time revenues,” Palmer said. “We don’t want to see that movie again.”

In his January budget, Brown urged his fellow Democrats who control the state Legislature to start paying off California’s massive liabilities, but did not propose directly addressing the deficit for the nation’s largest educator-only pension fund. The California State Teachers’ Retirement System says its debt grows by $22 million each day nothing is done, yet Brown said he would meet with the key players over the next year to create a plan for long-term solvency.

“We’ve had discussions on the issue … but nothing new to report,” Palmer said. He said if Brown intends to change his priorities for paying down the state’s debt, it will be revealed when he presents his revised budget recommendations next week.

Spokesmen for Legislative leaders said they could not immediately comment.

While some debts need urgent attention, the analyst’s report says the state is taking action on $140 billion in unfunded liabilities, including to the California Public Employees’ Retirement System.

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