Surveying California s Unfunded Retiree Healthcare Obligations

Transcription

1 Surveying California s Unfunded Retiree Healthcare Obligations California Common Sense By Adam Tatum April 3, 2014 P a g e 1 California Common Sense - info@cacs.org -

2 Table of Contents I. Introduction... 3 II. Unfunded Liabilities... 6 a. State, Cities, and Counties... 6 b. K-12 School Districts... 8 c. University of California System... 9 III. Policy Significance a. Pay-As-You-Go is More Expensive Than Prefunding b. Threatening Promised Benefits IV. Conclusion V. Appendix A: Background a. What is an OPEB? b. What Does the Unfunded Liability Mean? VI. Appendix B: Methodology VII. Endnotes California Common Sense - info@cacs.org - P a g e 2

3 Nationwide, numerous state and local governments have incurred massive unfunded retirement benefit liabilities, totaling trillions of dollars. These enormous liabilities have ushered in higher annual costs that have led to cuts to public services, and in the extreme cases, municipal bankruptcies. In recent years, retirement benefit plans have come under significant criticism for benefit increases, accounting gimmicks that hid true costs, and missed payments that resulted in the current public retirement benefit crisis. Under the Government Accounting Standards Board (GASB) statements No. 43 and 45, many municipalities began reporting liabilities associated with their other post-employment benefits (OPEBs). 1 OPEBs include any non-pension retirement benefit, but mainly include healthcare benefits. Typically, when public employees retire, they receive these healthcare benefits for the rest of their lives, or until they are eligible for Medicare (see Appendix A for background). These newly updated figures reveal billions of dollars in chronically underfunded OPEB liabilities. Despite that fact, OPEBs have not received nearly the same scrutiny or sense of urgency as their pension benefit counterparts. These enormous liabilities ushered in higher annual costs that have led to cuts to public services, and in the extreme cases, municipal bankruptcies. Introduction Pay-as-you-go: Payment strategy of paying for retirement benefits as they come due, as opposed to as they are earned. Prefunding: Payment strategy of setting aside sufficient funds as employees work to pay their benefits when they are retired. Properly prefunding retirement benefits entails setting aside sufficient funds as employees work to pay their benefits when they are retired. While most state and local governments prefund pension benefits to some extent, prefunding OPEBs is much less common. They instead wait until an employee retires to begin paying for their benefits, transferring the payment from one generation to the next (called pay-asyou-go). In fact, most OPEB plans have no assets and amass large liabilities whose costs will grow considerably over the next several decades. Since 2008, California s OPEB costs have grown 42%. 2 Ignoring the growing costs associated with lifelong retiree health plans is particularly acute in the state of California. The prevailing apathy towards the state s unfunded OPEB liabilities is due in part to the lack of understanding of the problem s financial magnitude. To help fill this void, California Common Sense has conducted a survey of 690 California OPEB liabilities at both the state and local levels (see Appendix B for methodology). P a g e 3 California Common Sense - info@cacs.org -

4 The survey revealed several key findings: The state of California, its counties, cities, school districts, trial courts, and the University of California system together have a total $157.7 billion in OPEB liabilities. Yet, they have set aside only $7.3 billion to offset the liability, leaving $150.4 billion entirely unfunded. The state, city, and county OPEB liabilities amount to an average of $3,338 per city resident; those associated with school districts amount to $3,918 per student. The UC system currently has a $13 billion unfunded OPEB liability, which amounts to $54,398 per student. In recent years, it has declined from $16 billion ($68,898 per student). 73% of the surveyed governments and systems set aside no assets to cover future retiree healthcare costs. The Los Angeles Unified School District and the Fresno Unified School District had the largest unfunded OPEB liabilities per student: $17,016 and $13,313, respectively. California s total $157.7 billion OPEB liability represents the present day cost of the promised benefits that employees and retirees have already earned based on their previous time worked. 3 Because the state, local governments, school districts, and UC have set aside only $7.3 billion toward funding that liability, California s systems are only 4.6% funded overall. This means that nearly all of the retiree healthcare liabilities throughout the state remain almost entirely unfunded (Table 1). At $150.4 billion, the state s total unfunded OPEB liability is comparable to the state s unfunded pension liabilities, which is at least $192 billion according to state figures. 4 Table 1: California State and Municipal OPEB Liabilities (in billions) Type Actuarial Accrued Liabilities (AAL) Assets Unfunded Liabilities Funding Ratio (Value Weighted) State % Counties % Cities % School Districts % UC System % Trial Courts % Total $ $7.25 $ % California Common Sense - info@cacs.org - P a g e 4

5 PERCENT OF PLANS FALLING WITHIN FUNDING RATIO RANGE Cities have the highest aggregate funding ratio: 22.5%. The cities total funding ratio still understates the full fiscal reality facing most California cities because the very few plans that do prefund account for the bulk of the funding ratio. Namely, the City of Los Angeles OPEB plans (which are much larger plans that those of most local governments) dominate the funded portion with over $4 billion in OPEB assets. Still, the city has $2.7 billion in unfunded OPEB liabilities. School districts have the highest rate of underfunding, with 87% of all surveyed school districts having a 0% funding ratio. While counties fared better on average, 58% of counties have no assets set aside for future benefits. Of the local governments that did prefund, most still had funding ratios below 25%. For most plans, when a retiree collects his or her benefits each year, the plan sponsor (the state, city, school district, etc.) pays it directly out-of-pocket rather than out of a trust fund. This pay-as-you-go approach has three significant downsides: 1. It is more expensive than prefunding over the long-term and shifts costs to future generations. 2. It injects significant future risk into overall budgets and funding for public services. 3. It jeopardizes the ability to provide those benefits in the future. Figure 1: Distribution of OPEB Funding Ratios by Entity Type 87% 100% 80% 60% 40% 20% 0% 58% 64% 25% 20% 15% 13% 9% 4% 0% 1% 0% 1% 2% 3% 0% 2% Counties Cities School Districts Total 9% LOCAL GOVERNMENT TYPE 73% 16% Over 100 FUNDING RATIO RANGE, % P a g e 5 California Common Sense - info@cacs.org -

6 Unfunded Liabilities Unfunded Liability: The difference between the value of assets needed to be invested today to pay for future benefits and actual value of assets (AAL Assets). Due to the magnitude of these unfunded OPEB liabilities, the costs to provide these benefits to retirees will become much more expensive in future years. Further, sustained inaction from the state and local governments will drive future costs even higher. These higher costs will directly impact state residents in at least one of two ways: 1. Rising costs will necessitate an increase in state and/or local taxes. 2. Rising costs will crowd out other budget areas and reduce the quality of essential public services. State, Cities, and Counties At the state level (including trial courts), the unfunded OPEB liability is $65.9 billion, amounting to approximately $1,737 per person. This has grown substantially from the $49.2 billion in unfunded OPEB liabilities reported in According to Standard and Poor s, there is at least $529 billion in unfunded OPEB liabilities nationwide (state-level). 7 California s state-level unfunded OPEB liability is the second largest in the U.S., behind New York (Figure 2). 8 Per capita, California s unfunded OPEB liability ranks 17 th in the nation. While this is lower than Hawaii s $8,408 per capita (the largest in U.S., not shown), California s exceeds the national average of $1,632 per capita. 9 Figure 2: States with Largest Unfunded OPEB Liabilities California Common Sense - info@cacs.org - P a g e 6

7 City In addition to the state-level unfunded liability, California s cities and counties have unfunded OPEB liabilities of $18 billion and $33 billion, respectively. The average per-capita unfunded OPEB liability among cities is $625 and among counties is $1, Los Angeles County has the largest unfunded OPEB liability ($27 billion) among all local governments. These liabilities also impact everyone, but to varying degrees. For taxpayers, a local outstanding OPEB liability will most impact the residents living in that community. For instance, the Los Angeles County unfunded liability will not directly impact someone living in San Francisco. City residents will, however, pay towards the OPEB liabilities at the state level, county level, and city level. Therefore, per-capita measures of OPEB liabilities should not be considered separately. Assuming that state-level OPEB liabilities are shared evenly by all state residents, and assuming that county- and city-level OPEB liabilities are shared evenly by their respective residents, the average unfunded OPEB liability per city resident is $3, Among the 10 most populated cities, San Francisco residents have the largest unfunded OPEB liability per person: $7,094. Los Angeles, Long Beach, and San Jose s unfunded liabilities per person are $5,125, $4,893, and $4,675, respectively. Fresno has the lowest adjusted OPEB liability per resident: $1,964, with the vast majority of that figure coming from its residents share in the state-level liability ($1,737). Figure 3: Adjusted OPEB Funding Liabilities Per Capita Among 10 Largest Cities San Francisco Los Angeles Long Beach San Jose Oakland Sacramento Anaheim San Diego Bakersfield Fresno Average (All Cities) $3,346 $2,750 $2,256 $2,072 $1,970 $1,964 $3,338 $5,125 $4,893 $4,675 $7,094 $0 $2,000 $4,000 $6,000 $8,000 Adjusted Unfunded OPEB Liability Per Capita P a g e 7 California Common Sense - info@cacs.org -

8 School DIstrict K-12 School Districts The state s school districts also incur their own significant OPEB liabilities, which collectively total $20.3 billion. Because school districts receive revenue from state, local, and federal sources, all state residents share some stake in schools districts OPEB liabilities. However, these unfunded OPEB liabilities will likely have their largest impact on students. Our survey included school districts that serve 5.2 million students, or 83% of the public K-12 student population statewide. 12 The districts $20.3 billion unfunded OPEB liability amounts to $3,918 per student. 13 Budget Crowd Out: The phenomenon where spending for a specific budget item grows faster than the overall budget, thereby reducing the funds available for other types of spending. The Los Angeles Unified School District and the Fresno Unified School District had the largest unfunded OPEB liabilities per student: $17,016 and $13,313, respectively. These unfunded OPEB liabilities will necessitate greater funding in the future, which would most likely crowd out classroom funding directed towards students. Figure 4: School Districts with Largest Per-Pupil Unfunded OPEB Liabilities Los Angeles Unified Fresno Unified Sacramento City Unified Oxnard Union High San Francisco Unified West Contra Costa Unified Alhambra Unified Palmdale Elementary Sequoia Union High Los Altos Elementary Average (All Districts) $5,403 $5,106 $4,714 $3,918 $8,847 $13,313 $13,287 $13,251 $12,935 $12,007 $17, ,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Unfunded Liability Per Pupil, in $ California Common Sense - info@cacs.org - P a g e 8

9 Unfunded OPEB Liability, billions These concerns about potential cuts to classrooms are only exacerbated by the similar (but more severe) predicament facing the woefully underfunded California State Teacher s Retirement System (CalSTRS), the state teachers pension system. CalSTRS requires an average of $8 billion in additional funding annually for the next 30 years to reach full funding, and analysts expect school districts to pay the bulk of those additional costs as well. 14 Simply put, going forward, California s school districts will be dedicating larger shares of their revenue to underfunded teacher retirement benefits rather than classroom spending, such as spending for books and supplies. University of California System The UC system currently has 238,686 students and a $13 billion unfunded OPEB liability, which amounts to $54,398 per student. 15 The UC s OPEB liability has fallen considerably since its peak of $16 billion in 2010 (nearly $68,898 per student). However, according to the system s actuary, UC OPEB costs are likely to more than double over the next 10 years. 16 To fully fund that future cost growth, the university may look to cut other spending or raise revenue by increasing student tuition once again. Figure 5: UC System Unfunded OPEB Liability v. Per Student $18 $16 $14 $12 $10 $8 $6 $4 $2 $80 $70 $60 $50 $40 $30 $20 $10 Unfunded OPEB Liablity Per Student, thousands $ Year $0 P a g e 9 California Common Sense - info@cacs.org -

10 Policy Significance An OPEB liability is not a measure of current costs, but rather, a discount of what benefits will likely cost in the future. Most OPEB plans in California have been funded on a pay-as-you-go basis since their inception. As stated earlier, this approach has three main downfalls: 1. It is more expensive than prefunding over the long-term and shifts costs to future generations. 2. It injects significant future risk into overall budgets and funding for public services. 3. It jeopardizes the ability to provide those benefits in the future. For these reasons, governments that do not prefund are commonly referred to as bad actors. 17 Pay-As-You-Go is More Expensive than Prefunding The typical approach to funding OPEBs contrasts starkly with the way pensions are funded; most public pension plan are prefunded and assets are accumulated to pay for retirement benefits during the working careers of each employee. However, with OPEBs, state and local governments wait until an employee retires to begin paying for his or her retirement benefits (generally healthcare premiums). This approach is significantly more expensive. Prefunding allows governments to not only save assets throughout each employee s working career, but it also allows governments to invest them and achieve investment returns that can also fund the benefits. In fact, 61% of all pension benefits are paid from investment returns, while employers and employee contributions fund only the remaining 39%. 18 By forgoing By forgoing the revenues from investment returns, funding OPEBs on a pay-as-you-go basis is inherently up to 2.5 times costlier to governments (and ultimately taxpayers) than prefunding. the revenues from investment returns, funding OPEBs on a pay-as-you-go basis is inherently up to 2.5 times costlier to governments (and ultimately taxpayers) than prefunding. 19 Governments frequently decide to avoid prefunding because it does require significantly higher contributions initially, despite being far less expensive in the long run. However, when calculating required prefunding costs, actuaries consider a number of assumptions (including investment returns, life California Common Sense - info@cacs.org - P a g e 10

11 expectancy, etc.). They calculate required payment schedules consisting of Annual Required Contributions (ARCs) amounts that if paid annually in full, would be sufficient to pay for all future benefits when the payment comes due (if assumptions hold true). Because the ARC would be deposited into a trust fund and invested, it actually represents a discount of the actual costs of retirement benefits. Therefore, states that forgo prefunding today are effectively borrowing (with interest) the difference between the ARC and the annual pay-as-you-go cost. Worse yet, many of these costs will start coming due all at once. OPEB costs are back-loaded, meaning that the majority of future OPEB costs are attributable to active employees who have yet to retiree. As baby boomers begin to retire en masse, state OPEB costs will increase rapidly in the coming years. Prefunding would smooth out that inevitable cost spike. The State of California itself is the single largest bad-actor. With over $64.6 billion in unfunded OPEB liabilities attributable to state employees, it accounts for the largest share of the state s combined OPEB debt. The state always pays far less than the full payments its OPEB liability requires (Figure 6). The difference between the Actual OPEB cost and the state s contribution will inevitably be paid in future years with interest. Since 2007, the state s missed payments (larger each year with interest), stand at nearly $20 billion. Figure 6: State of California OPEB Annual Required Contribution vs. Actual Contributions 2 Annual Required Contribution: An annual retirement benefit contribution designed to pay off the current unfunded liability as well as benefits accrued in the given year. The contribution s adequacy is contingent on many assumptions, including investment returns and mortality rates. While OPEB costs vary across California, prefunding is a best practice that better ensures the sustainability of providing retirement benefits. Prefunding would help California s governments and districts avoid the pitfall of overpromising benefits to employees and under delivering at the expense of both employees and taxpayers. Continuing to fund these benefits on a pay-as-you-go basis is akin to borrowing money each year, only to have future tax payers repay the money at a much higher cost. P a g e 11 California Common Sense - info@cacs.org -

12 Threatening Promised Benefits Because most state and local government OPEB plans are not financially backed by assets in an irrevocable trust fund, their OPEBs are particularly vulnerable to cuts. In California, non-pension retirement benefits generally do not share the same legal protections pensions have. The state constitution and case law heavily protects pension benefits, preventing their reduction for active employees and retirees even those benefits employees have not yet earned. This protection is commonly known as the California Rule. 20 Local Government Orange County 21 Sonoma County 22 Sacramento County 23 Los Angeles City 24 Table 2: Recent Court Decisions Pertaining to OPEB Cuts Description of OPEB Cut County separated its retirees from the active employee healthcare pool, thereby raising their health premiums. County cut the health subsidy to $500 per month, down from the county paying substantially all of the cost. County cut healthcare subsidies for retirees by $100 a month, from $244 to $144. Later, the county reduced the subsidy to $80.64 per month. City gave employees the option of earning a healthcare subsidy that was frozen at $1,190 per month or increasing their contributions into the plans by 4% of payroll to receive a normal benefit. Ruling Cut was upheld. Judge ruled that retirees do not have an implied contract that prohibits the county from separating their retirees from the active employee healthcare pool. Cut was upheld. Judge ruled that it was not shown the county agreed to provide healthcare benefits permanently. Cuts were upheld. Judge ruled that retirees have no right to permanent healthcare subsidies offered by the county. Cut was rejected. Judge ruled that the cut constituted an impairment of a vested right to a substantial or reasonable benefit. The judge cited some of the same case laws that have established pensions as a vested right. California Common Sense - info@cacs.org - P a g e 12

13 There is no clear California Rule that guarantees OPEBs for retirees. Because the state and local governments have set aside no assets for future benefits, some public employees and retirees could quite possibly have their benefits cut in severe fiscal circumstances. This is evidenced by the City of Stockton, which filed for bankruptcy in June Shortly after, it cleared its $540 million in unfunded OPEB liability by eliminating nearly all of its retiree healthcare benefits. 25 Given that OPEB costs are growing rapidly, many localities have attempted to scale back their retiree healthcare benefits. There is no clear California Rule that guarantees OPEBs for retirees. This has sparked several legal challenges that resulted in mixed rulings (Table 2). These cases evaluate a key question: have the governments and its employees actually entered into a contract (direct or implied) to provide and receive healthcare for life following employment? Courts upheld recent cuts to retiree healthcare benefits in Sonoma, Orange, and Sacramento counties, indicating that no such contract existed. However, cuts to retiree health benefits for Los Angeles city employees were overturned. In that case, the judge ruled that the cuts constituted an impairment of a vested right. The inconsistency among these rulings means that retiree healthcare benefits are far from guaranteed, especially when governments merely pay as they go. P a g e 13 California Common Sense - info@cacs.org -

14 Conclusion California s other post-employment benefit liabilities and costs are growing. Together, the state government, and its counties, cities, school districts, and University of California system have at least $150.4 billion in unfunded OPEB debt. These liabilities will impact everyone: the state, city, and county OPEB liabilities amount to an average of $3,338 per city resident, those associated with school districts amount to $3,918 per student, and those associated with the UC system amount to $54,398 per student. In exchange for limited short-term savings, 73% of all surveyed plans have not set aside a dime to fund future retiree healthcare obligations. Despite new accounting standards requiring their disclosure, these liabilities have largely gone ignored and their rapidly rising costs have repeatedly strained budgets statewide. Apathy has its consequences: it is more expensive in the long run and it breeds risk into California s state, local, and district budgets. Furthermore, it threatens those entities ability to provide those future benefits at all. Without question, prefunding is the cheapest long-term option for managing rising OPEB costs. In exchange for limited short-term savings, 73% of all surveyed plans have not set aside a dime to fund future retiree healthcare obligations. Instead, they are delaying their OPEB costs and shifting them to future generations of public employees, students, parents, and taxpayers. These short-term savings will come at the expense of significantly higher taxes and/or further neglected public services. If California s policymakers and citizens wish to ensure that retirees healthcare benefits are delivered as promised and at a sustainable cost, starting to manage these liabilities carefully today is essential. California Common Sense - info@cacs.org - P a g e 14

15 What is an OPEB? Other post-employment benefits, or OPEBs, are non-pension retirement benefits that an employee earns throughout his or her career and are provided throughout retirement. OPEBs primarily consist of medical, prescription drug, and dental benefits. These benefits are primarily funded by employer contributions towards a retiree s health insurance premium (health subsidy). These subsidies vary considerably among OPEB plans. The benefit level depends on the type of employee, the number of years the employee worked, the employee s age at retirement, and the maximum benefit an employer is willing to provide. Appendix A: Background In some cases, a retiree s health premium is paid entirely, and in others, the health subsidy is capped at a fixed amount. A retiree s benefit may also change depending on whether he or she is eligible for Medicare, the nation s public health insurance program generally for those over 65. Some OPEB plans only offer benefits until a retiree becomes Medicare eligible, and some others only offer supplemental coverage at that point. Some public entities allow their retirees to remain on the employee health insurance plan. Even if retirees are required to pay for 100% of their health premiums, this is also an OPEB. In these cases, allowing retirees (who are generally much older and relatively less healthy) to remain on an insurance plan meant only for active employees (who are generally younger and relatively healthier) lowers the retiree s premium below what he or she would have paid outside the active employee risk pool. This results in retiree savings at a cost to the employer (because the employer contributes towards the health premiums of active employees), called an implied subsidy. What Does the Unfunded Liability Mean? The future costs of providing retiree healthcare to plan participants are unknown. Participants include retirees who currently receive benefits and active employees who have not yet begun drawing benefits. Future costs depend on each participant s years of service, the participant s remaining years of life after retirement, future healthcare prices, the plan s investment returns, and many other factors. Public entities work with actuaries who study the OPEB plan s membership data and make assumptions about these factors for each plan participant. By doing this for each plan member and adjusting these assumptions based on what actually happens, the actuary predicts the total cost of providing retiree healthcare to P a g e 15 California Common Sense - info@cacs.org -

16 current plan participants. Actuaries then discount this total to a present day value that represents the amount of money that is required to be invested now to have sufficient assets to pay for future benefits when they are due. This amount is referred to as the actuarial accrued liability (AAL). The AAL minus the assets on hand equals the unfunded actuarial accrued liability (UAAL). At its core, the AAL represents costs accumulating today, but due in the future. For this reason, the unfunded liability is very debt-like in nature. To help pay off this debt, some public entities set aside funds during the employee s career which is called prefunding the future obligation. Actuaries design a payment plan that would both pay for benefits as employees earn them and pay off the existing OPEB debt. The calculated payment is called the Annual Required Contribution (ARC). Rather than set aside funds as an employee actually works (paying the ARC), most public entities currently make retiree healthcare payments when a retiree comes to collect the benefit each year, called pay-as-you-go. This dichotomy is akin to a parent setting aside funds for to pay for his or her child s education over the course of 18 years (prefunding) versus waiting for pay for the tuition payments only when his or her child enrolls in college (pay-as-you-go). California Common Sense - info@cacs.org - P a g e 16

17 To collect our data, we used the Comprehensive Annual Financial Reports (CAFRs) and other financial reports for the following public entities: the state of California, California cities, California counties, California K-12 school districts, and the University of California System. The data obtained from these documents was typically included the Notes to Financial Statements and/or in the Required Supplementary Information sections. Public entities generally presented this data in adherence to the Government Accounting Standard Board statements No. 43 and 45, which required that these entities to disclose information pertinent to other post-employment benefits, including their liabilities and costs. The OPEB variables that were collected for each public entity are the following: Appendix B: Methodology Table 3: OPEB Variables Collected Variable Actuarial Accrued Liability (AAL) Actuarial Value of Assets Unfunded Actuarial Accrued Liabilities (UAAL) Funding Ratio Covered Payroll UAAL as Percentage of Covered Payroll Description Based on member s service, the amount of money needed on hand today (and invested at the assumed rate of return) to pay for future benefits. The actuarial value of assets dedicated to OPEBs that have been deposited into an irrevocable trust fund. AAL minus Assets Assets divided by AAL The total payroll of those actively accruing benefits. UAAL divided by Covered Payroll Not all public entities were included in the survey. For some cities, we were unable to obtain financial reports. In many counties, cities, and school districts, OPEB disclosures under GASB No. 43 and 45 were excluded from their financial statements. In most cases, this was for unknown reasons, but in other cases the public entity stated that it did not offer OPEBs to retirees. However, in many instances, we noticed that public entities that claimed to not offer OPEB s did in fact offer them. Multiple entities that allowed retirees to remain on the active employees health plan (with retiree s paying 100% of cost) were P a g e 17 California Common Sense - info@cacs.org -

18 under the false assumption that this did not constitute an OPEB (this is called an implied subsidy, see Appendix A). Therefore, we excluded any city, county, or school district that did not disclose the pertinent OPEB information required for this study (even those that claimed to not provide OPEBs, which would result in an OPEB liability of $0). Therefore, the averages and distributions included in this report include only the public entities that do offer OPEBs to retirees and disclose their OPEB information on their financial statements. There are likely multiple entities that do offer OPEBs, but did not implement the proper disclosures. Also note that we surveyed only the most recent data available (most recent date varies among entities included in the survey). Due to the sheer number of school districts, we surveyed only the largest 300 (by enrollment). We also excluded education county offices because these entities financial statements were unavailable. The school districts included in the report educate 83% of the California s K-12 student population. Population data comes from the California Department of Finance (as of 1/1/2013) and the school district enrollment data is from the California Department of Education Public Schools Database. Public Entity Type Table 4: OPEB Survey Response Number with OPEB Plans Unable to Find Number in State and Proper Financial Report Disclosures Claimed to not offer OPEB and/or did not Disclose OPEB Information State Counties City School Districts 1026 (Only Covered 300 Largest) UC System Trial Courts California Common Sense - info@cacs.org - P a g e 18

19 1 Other Postemployment Benefits: A Plain-Language Summary of GASB Statements No. 43 and No. 45. Governmental Accounting Standards Board State of California Retiree Health Benefits Program. GASB Nos. 43 and 45 Actuarial Valuation Report as of June 30, Performed by Gabriel Roeder Smith and Company. Page EO/CalSCO_GASB45_AVReport_2013_Final.pdf 3 This technically refers to actuarial accruals, not literal accruals based on the benefit formula and structure, although these are similar and eventually converge. 4 The aggregate total comes from the State Controller s Public Retirement Systems Annual Report for Fiscal Year This report, while the most recent at the time of this analysis, it based on older actuarial valuations. To help alleviate this, the aggregate pension amount disclosed in the report has been updated to reflect the new liabilities for CalSTRS, CalPERS, UC pensions, and LA County pensions. Still, the most current aggregate pension liability is likely higher. California State Controller. Public Retirement Systems Annual Report Fiscal Year Figure 2: Summary of Statewide Funding Position for Defined Benefit Systems (Aggregate Amount). Page XV. Local/LocRep/retirement1011.pdf 5 For this breakdown and all others, San Francisco is classified as a city. 6 State of California Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, Page Standard & Poor s Rating Services. U.S. State OPEB Liabilities Decline Slightly, But Continue to Vary Widely. November 25, Page Ibid, Standard and Poor s data is based on 2012 and includes California s trial courts. But even with updated 2013 values, California s unfunded OPEB liability (along with Trial Courts) is lower than New York s unfunded liability. This relationship likely still holds, unless New York s OPEB liability is lowered in the 2013 actuarial valuation. 9 Ibid, note that the average has not been adjusted to reflect California s new values. This update will not substantially influence the average, however. 10 Weighted by Population. 11 This average is weighted by city population and applies to city residents. City residents pay towards the unfunded OPEB liabilities of the state, their city, and the county in which their city is included. Note that this calculation only includes cities for which we found OPEB information. Residents in cities without OPEBs or those living outside of cities still contribute towards state-level and county-level OPEB liabilities. 12 School district totals were obtained from the Public Schools Database from the California Department of Education Weighted by Enrollment 14 Re-Calibrating CalSTRS: Evaluating the California State Teachers Retirement System s Funding Shortfall. Adam Tatum and Jack Mosbacher. California Common Sense. October 3, Please note that this is illustrative only. In no way will this liability be paid out in one year. Rather, even if prefunding is nonexistent, it will paid out over multiple decades, but with increasing payments. 16 University of California Retiree Health Benefit Program. Actuarial Valuation as of July 1, Deloitte. Page To the author s knowledge, this name was first coined by Alicia Munnell in her 2012 book titled State and Local Pensions. What Now? Endnotes P a g e 19 California Common Sense - info@cacs.org -

20 18 NASRA Issue Brief: Public Pension Plan Investment Return Assumptions. National Association of State Retirement Administrators. December Page 2, Figure Assuming similar fund structure, investment strategies (average target return is around 7.72 % via NASRA), and that the increased revenue is not directly used for higher (more costly) benefits. 20 Statutes as Contracts? The California Rule and Its Impact on Public Pension Reform. Amy B. Monahan Retired Employees Association of Orange County, Inc v. County of Orange. United States Court of Appeals for the Ninth Circuit. Case February 13, Sonoma County Association of Retired Employees v. Sonoma County. United States Court of Appeals for the Ninth Circuit. No February 25, Judge Allows County to Cut Health Care Benefits. Ted Appel. Watch Sonoma County Federal Judge Says Sacramento County Retirees Aren t Entitled to Permanent Health Care Subsidies. Denny Walsh. The Sacramento Bee Los Angeles City Attorney s Association v. City of Los Angeles. Superior Court of the State of California for the County of Los Angeles. Case No. BS September 13, City and Official Retirees Committee Reach Tentative Agreement. City of Stockton. Stockton Retirees Worry Pension Cuts Follow Health Losses. Alison Vekshin. Bloomberg. April 21, San Francisco is classified as a city for the purposes of this report. 27 Technically is 285. The data for Santa Rosa City Schools, Modesto City Schools, and Santa Cruz City Schools actually includes 6 districts (two each). The financial reporting for these districts is consolidated. California Common Sense - info@cacs.org - P a g e 20