WHEN THE GOVERNOR and legislators talk about balancing the California state budget, they're talking about closing the gap between revenues and required expenditures, either by increasing the former or reducing the latter. The task becomes more difficult by the minute.

Looming on the not-too-distant horizon, however, are some other huge obligations that the current crop of elected officeholders has chosen to ignore, because acknowledging them would make closing the chronic budget gap just that much harder.

There is, for example, a potentially huge increase in the "contribution" that the state must make to the California Public Employees' Retirement System to cover public pensions.

CalPERS has seen its once-immense investment portfolio shrink dramatically, due to recession and some truly boneheaded investments, such as a $1 billion haircut on raw land in Southern California. Big increases in pension benefits, enacted a decade ago, are also a factor.

CalPERS won't tell the state how much its boost will be until sometime next year, but it could be hefty, unless CalPERS postpones the pain by stretching out the bite over several years — which would merely postpone the pain.

An even bigger headache is a new requirement that state and local governments identify and quantify their obligations for providing health care to their retired employees. The state auditor's office and an advisory commission told the state two years ago that its unfunded liability for health care is $48 billion.


Advertisement

State officials were advised to commit $3.73 billion during the current fiscal year to begin shrinking the unfunded liability, but the state is paying just $1.36 billion to cover its current costs.

The Legislature, under the sway of unions, rejected Gov. Arnold Schwarzenegger's plan to overhaul employee health care to save money, but he's trying again, seeking to increase the amount of time it takes new state employees to earn lifetime health benefits, boosting it from 20 to 25 years.

The state auditor's office says in a new report that $4.71 billion would be needed in 2009-10 — this year's unfunded deficit, next year's current costs and next year's share of the unfunded amount. It's like a high-interest credit card debt that continues to grow when a cardholder makes only minimum payments.

Those numbers don't count future health care costs for University of California or court system retirees, estimated at $13 billion. Nor do they include retirees from local school districts and local governments, another $58.7 billion.

Some of the latter have begun to set aside money for retiree health care, the auditor's office says in its report, but the state, the university and the court system have not. The state's total retiree health care headache is about $120 billion — more than the entire one-year state general fund budget — and growing steadily.

One can understand the politicians' reluctance to set aside money from a budget that's already awash in red ink. But how long can they ignore this ticking fiscal time bomb?

Dan Walters (dwalters@sacbee.com) is a columnist for the Sacramento Bee.