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Calif. public employees retirement fund straining state budget

July 17, 2012 12:00:00 AM PDT
State and local agencies are bracing for higher pension bills after the state's public employees retirement system reported a dismal return on investments. And the news is giving fuel to pension-reform advocates who say the system needs to be fixed before the state goes bust.

The California Public Employees' Retirement System (CalPERS) held a meeting Tuesday. Investment managers at the meeting said they know they have to use new strategies. Taxpayers are counting on it.

"One percent is positive but it's far below our target return of 7.5 percent," CalPERS Chief Investment Officer Joe Dear.

Blame it on the European debt crisis and the slowing of global economic growth. The nation's largest public pension fund, CalPERS, made a measly 1 percent rate of return this past year. The rate is critical because taxpayers make up any shortfall whenever public pension funds miss their mark.

Despite a 7.7 percent return over 20 years, CalPERS acknowledges it'll be asking for more money from future budgets.

"In a year, the state contribution rates will be adjusted upward, and in two years local government rates will be adjusted somewhat upward," said Dear.

The state budget has been increasingly forced to give bigger contributions to meet retirement obligations.

The local bankruptcies of Stockton and San Bernardino were due in part to crushing pension debt.

Just six years ago, $1.5 billion, or 1.5 percent of California's General Fund, went to CalPERS. This year, the share jumped to more than $2 billion dollars, or about 2.5 percent of the general fund. It's actually closer to 4 percent when you add in teachers' pensions.

Critics say when pension obligations increase, that means less money for other things. They point out state pension spending is up 400 percent in the last decade while spending for UC and CSU is down 30 percent.

It's actually in the state Constitution that pension obligations, like bond debt, are one of the first line items to be paid.

"These benefits are very, very risky. And this type of return isn't helping at all," said Marcia Fritz, director of the California Foundation for Fiscal Responsibility.

There's almost nothing taxpayers can do at this point to lessen their burden unless lawmakers enact changes, something public employee unions have fought.

During good times, though, Californians pay little or nothing toward pensions. But during tough economic times, they have to step up.

"If I work for you and we have a collective-bargaining agreement that I put in a certain amount and you put in a certain amount, you're still obligated to do that regardless of the state, of the status, of what's happening in the economy," said Willie Pelote, assistant director, American Federation of State, County and Municipal Employees.

But Governor Brown and Democratic leaders are still at odds over what pension changes to make. The Governor's plan is much tougher.

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