Capitol Alert

The latest on California politics and government

June 25, 2014
Moody's raises California's bond credit rating

California Budget_signing_2014_resized.JPG

Moody's Investors Service, one of the nation's largest credit rating organizations, upgraded its rating of California's $86 billion in general obligation debt Wednesday, citing the state's "rapidly improving financial position."

The upgrade from A1 to Aa3 came just a few days after Gov. Jerry Brown signed a 2014-15 state budget whose revenues and outgo are balanced and includes a "rainy-day fund" that will, if approved by voters in November, absorb some excess revenues.

Moody's also cited the state's progress in reducing unfunded pension liabilities and its improving economy in its upgrade, but cautioned that the state's revenue structure remains volatile.

The firm also raised its ratings of other state and local debts in its report.

PHOTO: Looking on behind are, from left, state Sen. Ben Hueso, Assemblywoman Nancy Skinner, Assembly Speaker Toni Atkins, and Senate President Pro Tem Darrell Steinberg. Associated Press Photo/Gregory Bull

May 23, 2014
Legislature scales back Brown's teacher pension rescue plan

State legislators heard a heavy litany of complaints from school officials this week about Gov. Jerry Brown's plan to make the State Teachers Retirement System solvent and in response temporarily toned down the bite on their budgets.

The Brown plan aims to close a $70-plus billion unfunded liability by eventually raising contributions to $5-plus billion a year, with the lion's share coming from the budgets of local school districts.

But school officials told a joint legislative hearing that the sharp increases would wipe out much of the gains in state aid they are scheduled to receive during the remainder of the decade.

In response, the chairs of the two legislative committees involved asked for a modification and on Friday, the Legislative Analyst's Office released a revised chart that would reach the same level of financing sought by Brown by 2020, but lower the increase in the early years and raise it later.

Brown wanted districts to raise contributions from 8.25 percent of payroll in 2014-15 to 9.5 percent, for instance, but the legislative plan scales it back to 8.88 percent. Districts' payments would ramp up gradually thereafter and surpass Brown's plan in 2018-19 at 17.75 percent, markedly higher than the 15.9 percent in Brown's plan for that year.

Both plans would top out at 19.1 percent in 2020-21, with school districts paying $3.8 billion that year into the pension system, over 70 percent of the $5.3 billion annual increase in revenue for STRS.

The state's contributions and those of teachers would remain virtually the same as Brown's plan, although the increase for teachers hired after Jan. 1, 2013, would be slightly lower for one year.

PHOTO: Joined by school officials, California Gov. Jerry Brown speaks at an April 2013 news conference in Sacramento. The Sacramento Bee/Renee. C. Byer

February 20, 2014
Moody's warns bankrupt cities they must cut pension debts

Moodys1.jpgMoody's Investors Services, a major bond rating house, warned Thursday that if bankrupt California cities don't reduce their pension obligations, they risk returning to insolvency.

The warning was aimed directly at two bankrupt cities, Stockton and San Bernardino, but Moody's cited the experience of Vallejo, which emerged from an earlier bankruptcy without reducing its pension debt and is once again facing fiscal turmoil.

"In California, particularly for municipalities with pensions under the California Public Employees Retiree System, or CalPERS, bondholders will likely continue to pay a steep price if bankruptcies remain venues for restructuring debt obligations but pension liabilities remain untouched," Moody's Vice President Gregory Lipitz said in a special report on the California situation.

Stockton did not seek to reduce its pension obligations, despite pressure from other creditors, and has nearly concluded a deal with creditors on a recovery plan.

San Bernardino is still in the mediation process with creditors, but has indicated that it may seek pension modification.

September 30, 2013
Cal-Tax estimates California's state and local debt at $443 billion

HJA_7844.JPGGov. Jerry Brown has repeatedly pledged to tear down what he calls California's "wall of debt."

But Brown's definition of that debt wall - about $30 billion in accumulated deficits from recent state budgets - is less than 10 percent of the debt that state and local governments have amassed, according to a new compilation by the California Taxpayers Association, if one includes unfunded liabilities for public employee pensions.

Cal-Tax researchers counted $443 billion in state and local debts, roughly two-thirds of it carried by the state and the other third by local agencies. That's the equivalent of a fifth of the state's annual economic output and amounts to $11,600 for each of California's 38 million residents.

August 1, 2013
California pension funds took in $33.8B, paid out $28.2B last year

ACW CALPERS BLD.JPGCalifornia's state-managed public employee pension funds took in $33.8 billion from employer and employee contributions in 2012 and paid out $28.2 billion in benefits to 874,734 retirees, according to a new Census Bureau report.

There are five state-managed pension funds but the two biggest, the California Public Employees Retirement System and the State Teachers Retirement System, account for all but a fraction of their overall economic activity.

Collectively, the five held $430.2 billion in assets of various kinds - corporate stocks being the largest single bloc at $177 billion -- in 2012 but had $592.2 billion in calculated obligations for 1.9 million public employee members of the systems, the report said.

Investment earnings in 2012 were just under $14 billion, while employees contributed $6.2 billion and state and local governments kicked in another $13.7 billion.

February 4, 2013
California teachers pension fund faces $64 billion deficit

The trust fund that provides pensions to retired teachers has a $64 billion deficit and would need a $4.5 billion per year infusion of revenue to become fully solvent, according to a new internal study.

The California State Teachers Retirement System produced the report in response to a legislative resolution.

Its release came just days after the Legislature's budget analyst, Mac Taylor, indirectly chided Gov. Jerry Brown for ignoring "huge unfunded liabilities associated with the teachers' retirement system and state retiree health benefits" in his new budget.

STRS receives money from the state, from local school districts and from teachers themselves, but is also highly dependent on investment earnings, which were clobbered during the recent recession. And while its larger cousin, the California Public Employees Retirement System, has the power take money from the state treasury as it sees fit, STRS must receive specific appropriations from the Legislature.

While fully funding teacher pensions would require $4.5 billion more a year --excluding projected investment earnings -- the system says in its report, the burden would be eased by setting lower funding targets and./or stretching out contributions. The most important decision, STRS said, is to begin closing the deficit, rather than allowing it to widen further.

September 5, 2012
Audit: CalSTRS' pension spiking controls are inadequate

120904 Jack Ehnes 059 5x7 color.JPGThe California State Teachers' Retirement System isn't keeping a close eye on pension spiking, according to a new audit of the state's second-largest pension fund.

CalSTRS CEO Jack Ehnes responded that the organization is committed to cracking down on pension spiking.

"CalSTRS agrees with the Controller's recommendations and will take additional actions to further strengthen its controls," Ehnes said in a press statement release shortly after the audit was made public today. "In fact, many of the recommendations in the report have been initiated within the last year."

The review by State Controller John Chiang's office found CalSTRS, with more than 1,900 employer-members, averages just 40 audits per year.


Capitol Alert Staff

Amy Chance Amy Chance is political editor for The Sacramento Bee. Twitter: @Amy_Chance

Dan Smith Dan Smith is Capitol bureau chief for The Sacramento Bee. Twitter: @DanielSnowSmith

Jim Miller Jim Miller covers California policy and politics and edits Capitol Alert. Twitter: @jimmiller2

David Siders David Siders covers the Brown administration. Twitter: @davidsiders

Christopher Cadelago Christopher Cadelago covers California politics and health care. Twitter: @ccadelago

Laurel Rosenhall Laurel Rosenhall covers the Legislature, the lobbying community and higher education. Twitter: @LaurelRosenhall

Jeremy White Jeremy B. White covers the Legislature. Twitter: @capitolalert

Koseff Alexei Koseff edits Capitol Alert's mobile Insider Edition. Twitter: @akoseff

Dan Walters Dan Walters is a columnist for The Sacramento Bee. Twitter: @WaltersBee

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