Earlier this week a reporter asked me to comment about a bond under discussion in the Legislature. I responded that the costs of past obligations already crowd out spending on current programs — in 2023-24 the state spent $6.7 billion on past bonds and $16.2 billion on past employees — so any time the Legislature wishes to add more deferred obligations it should make sure the money is truly needed and well spent.
As that spending implies, the state’s obligations to retired employees — $365 billion — dwarf its $70 billion in obligations to bondholders. To add insult to injury, $270 billion in pension obligations were created under false pretenses and $95 billion in insurance subsidies are not necessary in a world of Medicare, Obamacare and successor-employer healthcare, which is one reason neighboring states provide a tiny fraction of California’s subsidies to their retired employees. California’s past promises to public employees are consuming its future, and not so slowly.
Of a related nature, recently some GFC supporters questioned our continuing pressure on Governor Newsom and the Legislature to refrain from drawing anything from the Rainy Day Fund (RDF) after Newsom, in response to GFC’s earlier petitions, already reduced the draw he proposed in January by 70 percent. They thought we should declare victory. But the deficit is the result of excessive spending, the reduced draw Newsom proposes is still 1/7th of a RDF that’s already too small for the amounts needed in a recession, and the amount of the draw could easily be covered by reducing the $4.5b per year the state continues to waste on insurance subsidies for retired employees. We cannot afford to reduce the pressure.
