SAN FRANCISCO - California dealt with its short-term budget crisis last week, but its long-term fiscal imbalance continues to grow, according to a new report from Controller John Chiang.

The most populous U.S. state's unfunded retiree health and dental care liability rose $340 million to $48.2 billion as of June 30, 2008, from $47.9 billion a year earlier, according to an actuarial study by Gabriel Roeder Smith & Co. of Chicago.

"Even as the State grapples with a decline in revenues during difficult economic times, it is important for lawmakers to begin crafting a long-range plan to meet this future obligation," Chiang said in a statement.

Governments across the nation are facing up to massive unfunded retiree health care liabilities as they comply with the Government Accounting Standards Board's Statement 45, which changed generally accepted accounting principles to require the recognition of so-called other post-employment benefit liabilities in much the same way they recognize their pension liabilities.

California lawmakers last week closed a $41.6 billion hole in their fiscal 2008-2009 and 2009-2010 budgets with a combination of spending cuts, tax hikes, federal stimulus dollars and deficit financing via lottery bonds.

The deal followed more than three months of negotiations, a credit rating downgrade that left the state with Standard & Poor's lowest rating for a state, and a cash crisis that halted tax refunds and infrastructure spending.

The state's annual required retiree health care contribution rose to $3.7 billion for 2008-09. That's more than double the $1.4 billion the state allocated for health benefits. The actuaries projected that the required contribution will rise to $3.9 billion in fiscal 2010.

Chiang is pushing lawmakers to pre-fund retiree health benefits instead of continuing the current pay-as-you-go practice. The actuarial report showed that fully funding the currently unfunded liability would cut the cost to $31.2 billion.

The controller said even a partial pre-funding could significantly lower the state's liability. The report projected that the unfunded OPEB liability will grow from $48 billion to $71 billion over the next decade.

"By setting aside additional dollars that can be invested in the future, we can grow new funds to pay for the health benefits we have promised our retirees in a responsible and fiscally prudent manner," Chiang said.

Fully pre-funding OPEB obligations, which remains rare among states and municipalities, reduces costs because it allows the government to earn interest on the trust fund that helps pay future benefits. Many municipalities have used taxable municipal bonds to pre-fund pension liabilities, but they have been reluctant to use debt to pre-fund OPEB liabilities.

Chiang said that fully funding the state's accruing OPEB liabilities would increase costs over the next 14 years, but it would save the state money thereafter.

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