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   From: newsom@fuckups.com   
      
   California’s total long-term debt, between the state and local   
   governments, has quietly surged to over half a trillion dollars, making it   
   the most indebted state in the nation. The state’s debt problem is largely   
   due to rapid growth in unfunded liabilities for pension and health care   
   retirement benefits already promised to public workers.   
      
   If California does not act quickly to reduce this debt to more sustainable   
   levels, it risks being forced to raise taxes—potentially driving away an   
   already burdened tax base—or cut services like roads, education, and   
   policing.   
      
   The state’s debt ratio is also important, given California’s large economy   
   and population. The debt ratio compares a state’s liabilities to its   
   assets and revenues. As of 2022, California had the nation’s fifth-worst   
   debt ratio, at 106%—meaning the state owes more money than it takes in.   
   The next two most populous states, Texas and Florida, had far lower debt   
   ratios of 46.52% and 30.26%, respectively.   
      
   Thanks primarily to federal aid to state and local governments during the   
   COVID-19 pandemic, California’s debt ratio has fallen by 11% since 2020.   
   However, other states were able to wipe out far more debt. Texas and   
   Florida reduced their debt ratios by about 30% each from 2020 to 2022.   
      
   At the state employer level, California has $273 billion in noncurrent   
   liabilities (debts not due within the next year). Unfunded public employee   
   obligations account for 56% of California’s noncurrent liabilities.   
   Roughly two-thirds of these liabilities come from unfunded retiree health   
   care benefits, with unfunded public pension benefits making up most of the   
   rest.   
      
   >From 2012 to 2022, California’s unfunded public employee debt increased by   
   710%, from $19 billion to $154 billion. Unfunded obligations represent the   
   gap between the pension benefits that the government has promised to   
   public employees and the funds that have been set aside to meet these   
   commitments. Increases in unfunded liabilities can result from lower-than-   
   expected investment returns or inadequate annual contributions by the   
   government and plan members.   
      
   However, $273 billion is just the long-term debt held by the state itself.   
   Local governments have nearly the same amount of debt. In a forthcoming   
   analysis of California’s largest cities, counties, and school districts,   
   Reason Foundation finds that these local entities added at least an   
   additional $238 billion in debt, bringing California’s total state and   
   local long-term debt to over $510 billion. For example, Los Angeles County   
   has $46 billion in debt, the city of Los Angeles has $47 billion, and the   
   Los Angeles Unified School District has $27 billion.   
      
   California cities have especially struggled to manage rising pension   
   costs, with some, like San Bernardino, being forced to declare bankruptcy   
   due to the financial strain. Other cities have avoided bankruptcy but have   
   still had to tighten their fiscal belts. San Diego, for example, opted to   
   reduce its required annual pension contributions to contain its short-term   
   budget deficit, pushing pension costs into the future.*   
      
   Some cities that have continued making full pension contributions have   
   made cuts elsewhere.   
      
   Jim Reed, former mayor of Scotts Valley, explained, “The single most   
   important reason we have the fiscal crunch that we have today is that   
   pensions—our pension liability—is impacting our ability to provide core   
   services.”   
      
   California’s state and local governments must focus on paying down debt   
   rather than waiting until the only option is raising taxes. Spending cuts   
   to balance budgets may be politically difficult but are necessary.   
   Likewise, selling unneeded and underutilized property and assets,   
   privatizing infrastructure like airports, and partnering with private   
   sector companies on expensive megaprojects, like needed highway expansion   
   and toll roads, can save or generate money to help pay down debt.   
      
   With over half a trillion dollars in total government debt, it is unclear   
   how much longer California’s state government, cities, counties, and   
   school districts can continue on this financial path without reducing   
   spending or raising taxes.   
      
   *This piece has been updated to clarify that San Diego adjusted its   
   amortization method, shifting from level dollar amortization—considered by   
   actuaries to be the superior measure—to percent of pay amortization, which   
   ties contributions to payroll growth and effectively pushes a larger share   
   of costs into the future.   
      
   A version of this column first appeared in The Los Angeles Daily News.   
      
   Mariana Trujillo is a policy analyst with Reason Foundation's Pension   
   Integrity Project.   
      
   https://reason.org/commentary/californias-state-and-local-government-debt-   
   is-over-500-billion/   
      
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    * Origin: you cannot sedate... all the things you hate (1:229/2)