What is the unfunded liability of California state and local governments? Put simply, the unfunded liability is the shortfall between retirement benefits that governments have promised their workers and the current funding available to meet those obligations.

How much is it? According to the state controller’s office, the unfunded liability of California’s 130 state and local government pension plans stood at $241.3 billion as of 2014, the most recent year for which figures are available. In addition to pensions, an analysis of state and local government financial reports representing 90% of public workers uncovered $125 billion in unfunded retiree healthcare costs. This brings the public retirement debt to at least $366 billion. Here are retiree health liabilities for the state, the UC system and large local governments: Government Entity Liability State of California $74.2 billion University of California $17.3 billion City of Los Angeles $2.5 billion Los Angeles County $26.8 billion San Francisco City/County $4 billion Orange County $418 million

How did it get so big? Beginning with a 1999 bill known as SB 400, public employees enjoyed a wave of benefit enhancements amid a booming stock market. Since then, the unfunded liability has grown rapidly as pension funds took a one-two punch during the dot-com crash and the housing crisis. ADVERTISEMENT The gap grows wider every year, even though the financial markets have rebounded since the end of the recession. That’s because pension bills keep piling up while employees retire as early as 50, public employee unions successfully negotiate multiyear pay raises, and plans fall further behind on optimistic investment assumptions.

How is the unfunded liability calculated? Generally, pension funds assume they will make 7.5% on their investments each year, while also collecting contributions from the employee and employer. The state’s two largest systems — the California Public Employees’ Retirement System and the California State Teachers’ Retirement System — have fallen below their long-term investment targets, to annual growth of 7.03% and 7.1%, respectively. Joe Nation, a professor at Stanford University’s Institute for Economic Policy Research, estimates that if pension administrators lowered their earning assumptions to about 4%, California’s unfunded liabilities would approach $1 trillion.

Judy Lin is a reporter at CALmatters, a nonprofit journalism venture in Sacramento covering state policy and politics.

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Credits: Design and production by Lily Mihalik

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