Last week I calculated that CalPERS would increase its pension charges to cities, counties, and the state of California over 30% to regain massive investment losses over the last decade. My initial estimate was drawn from a presentation by Kung-pei Hwang, CalPERS Senior Actuary, which I recorded mid November. My report also detailed the gimmickry that CalPERS used to hide the 50% shortfall in their planned assets. However, it looks like my estimate was way low because we now have new video of the CalPERS board stating in their own words that the costs to cities, counties and the state will increase a GINORMOUS 55% by 2013 and the increased rate will need to be in place for at least the next 19 years.
And, this will only provide a 50/50 chance of getting to where they need to be to fulfill pension obligations for municipal and state workers. In aggregate for all municipalities and the state this could equal a $4 billion a year drag on the economy of cities and counties as each spends less for local government functions. Many cities and counties are already struggling to meet the current pension costs. The new rate threatens to put many governments into serious financial trouble. For the City of Los Angeles alone this means an increase of $340 million each year in payments to CalPERS!
Listen at the 57 minute and 37 second mark of this video as a board member adds up the financial hit cities and counties in California are about to take……
[youtube 9CzFJkjEV8U#t=57m31s CalPERS Asset Liability Management Workshop Segment 3]
In addition, CalPERS admits earlier in this video that they have not built into their forecast the fact that restrained government budgets will likely result in layoffs and/or early retirement which will further strain the pension system. Less municipal & state employees means less payments made into CalPERS to refill its underfunded coffers. Their financial model does not reflect this reality.
CalPERS board met this November and recorded the two day conference in 8 hours of video they posted on their YouTube Channel. You can view all 8 hours of this meeting here.
California bondholders beware.
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