ON-Lion Letter

In January, the Pacific Research Institute (PRI) in San Francisco released a new study on California's pension crisis, California's Pension Crowd-out, by its senior fellow Wayne Winegarden.  The study reveals the flaws with the state's current public-pension systems; analyzes the severe budgetary impact on government services and the burden on California taxpayers; and provides potential reforms that could lessen the impending adverse economic consequences.

"For years, the state government has consistently undercontributed to the pension fund while overpromising benefits," according to PRI's Winegarden, whose work is supported by Milwaukee's Lynde and Harry Bradley Foundation.  "The result is a critical underfunding problem exacerbated by rising pension costs."

In California, pension costs grew twice as fast as tax revenues during the last decade, exerting upward pressure on the state's tax burden -- the fourth-highest in the country, according to the Bradley-supported Tax Foundation.  The excessive growth in pension payments is also crowding out spending on other government priorities.

The unfunded liabilities of California's defined-benefit public-pension plans are around $170 billion, or 125% of total state tax revenues, or 7% of total state GDP, as of 2014.  If risk is taken into account, California's unfunded pension liabilities increase to between $300 billion and $600 billion, equivalent of between 13% and 28% of total California GDP in 2014.

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