LOS ANGELES — California Gov. Jerry Brown’s revised budget proposes using a short-term state investment fund to make a $6 billion supplemental payment to the California Public Employees’ Retirement System to reduce the state's pension liability.
The move would reduce the state’s pension obligations by more than $11 billion over the next 20 years, stabilize state contribution rates and reduce unfunded liabilities, Brown, a Democrat, said Thursday.
“We accomplish this by strategically over-paying our pension bill to CalPERS by $6 billion using state monies that currently earn less than 1%,” California Treasurer John Chiang said in a release. “For every dollar we will put in today, the unfunded liability will be reduced by $2 over the next 20 years.”
The $6 billion supplemental payment to CalPERS would involve a loan from the Surplus Money Investment fund.
“The cost of paying back the loan is substantially lower than the cost if we are forced to pay higher contribution rates,” Michael Cohen, director of the California Department of Finance, said during Thursday's press conference, during which Brown released his May budget proposal for fiscal 2018.
The state would repay the loan to the investment fund using money from Proposition 2 revenues, a rainy day fund established by voters to be used to reduce debts and long-term liabilities, Cohen said.
“Faced with the stark reality that the state is on a trajectory to increase its pension payments from the current $5.8 billion to $9.2 billion in a mere six years, the Governor and I are partnering on a fiscally prudent plan to buy down our pension debt using what Albert Einstein once called ‘the eighth wonder of the world,’ compound interest,” Chiang said.
Brown released his revised budget amid concerns over federal healthcare spending and lower-than-anticipated revenues.
The release of Brown's revised spending plan for the next fiscal year spurs a final month of negotiations with the Legislature, which has until June 15 to approve a budget.
Brown proposed a $183.4 billion budget for the fiscal year starting July 1 that keeps general fund spending mostly flat. The governor called for more than $3 billion in cuts in January because of a deficit he projected at $1.6 billion earlier in the year. His administration later acknowledged it miscalculated health care costs. Updated deficit projections put the deficit at $400 million – but Cohen said that number will be whittled down to zero during negotiations with lawmakers.
Over the past year, state revenues have lagged expectations. Though the forecast is less dire than what was projected in January when revenues were expected to be down by $5.8 billion, the governor’s forecast still projects that revenues for the year will be off $3.3 billion from earlier projections, he said.
“In California, we don’t live in a world of straight line revenues that go up and don’t go down,” Brown said. “We need to manage wisely and compassionately by not doing a start, stop on programs. It is cruel to promise people a spending program that doesn’t happen.”
Controller Betty Yee’s cash report on state revenues released Wednesday also showed missed projections.
State revenues of $96.9 billion missed projections in the governor’s proposed January budget by $211.3 million for the first 10 months of fiscal year 2016-17 and fell short by $1.05 billion in April, according to Yee’s report.
“April is usually the state’s biggest tax filing month, so lower-than-expected personal income tax receipts are troubling,” Yee said in her report. “This is another signal that we may be inching towards an economic downturn, and we must tailor our spending accordingly.”
Brown also warned about the potential for major cuts to the state’s Medi-Cal program under national healthcare changes, though he expressed doubt that the U.S. Senate would follow the House’s lead in repealing Obamacare.
He also criticized Republican members of Congress from California for voting for a healthcare plan that hurts their constituents.
"I really don't understand why those people in swing districts are following the dictates of Donald Trump,” Brown said. "They are going to have to do penance for it.”
The new budget plan also assumes repair of the Oroville Dam’s smashed flood spillways, but doesn't yet provide money to rebuild the main spillway estimated to cost $275 million.