California’s public employees not only receive the most generous pension benefits in the nation, but they also receive enviable healthcare and dental benefits. Such generosity, of course, is paid by taxpayers—and in many cases not paid at all. California is amassing a growing level of debt as the costs for those benefits exceed direct state payments.
A new report from California State Controller Malia Cohen explains that “the state’s net liability for retiree health and dental benefits—also known as other post-employment benefits (OPEB)—increased to $91.5 billion.”
That’s a $6.3-billion boost. The reasons include inflation, higher claims and changes in “plan design” that boosted costs, per her office’s statement.
For context, California’s total general-fund budget receipts are around $208 billion and the state recently struggled to shave $20 billion (mostly through gimmicks) from its spending. These liabilities aren’t paid in a single year, but it shows the depth of the problem.
The controller’s report is filled with detail, but paints an unrealistically rosy picture by pointing to ongoing state pre-funding efforts.
As the Sacramento Bee reported, the state began those efforts in 2010 with the goal for having these OPEB benefits fully funded by 2046—but only 9% currently are funded.
The Bee was correct that these liabilities reflect “a long-term financial challenge for California” and “recent decisions to suspend contributions for two years threaten to delay that goal.”
The state’s decision to take that kick-the-can approach is just one example of Gov. Gavin Newsom’s and the Legislature’s reliance on gimmicks—rather than spending cuts—to paper over projected deficits.
What good is a long-term plan to pre-fund benefits if the state simply suspends contributions to temporarily shave $700 million in annual spending?
As noted by David Crane of Govern for California, this is entirely a self-inflicted problem. “California is an embarrassing outlier in providing such an expensive retiree health benefit; e.g., a retired Washington State employee of Medicare age costs 1/10th as much as the same retiree costs California,” he noted in a recent Substack post.
Worse still, this is a problem also mirrored at local government entities. “The state’s extravagance is also mirrored in many of its cities, counties, schools (e.g., LAUSD alone is spending $318 million this year on retiree health costs), colleges, universities and special districts,” he explained.
To what extent Californians believe it is in their interest to lavishly spend on former government workers isn’t clear. But this is a status quo propped up and defended by the state’s powerful government worker unions.
This comes at great cost to taxpayers, both directly in the form of the dollars going toward these perks but also indirectly as fewer tax dollars go toward things that actually benefit the public and instead go toward poorly designed and bloated benefit programs.
It might be news to our state’s leaders at this point, but the national economy is showing signs of recession—and it’s a big risk to expect roaring stock-market gains to bail us out from growing liability costs.
At some point, California will need to stand up to its powerful public-employee unions and pare back these unaffordable benefits.