Reporting from Sacramento - Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento, according to a report to be released today by the chief budget analyst.
The new figure -- the nonpartisan analyst's first projection for the coming budget -- threatens to send Sacramento back into budgetary gridlock and force more across-the-board cuts in state programs.
The grim forecast, described by people who were briefed on the report by Legislative Analyst Mac Taylor, comes courtesy of California's recession-wracked economy, unrealistic budgeting assumptions, spending cuts tied up in the courts and disappearing federal stimulus funds.
"Economic recovery will not take away the very severe budget problems for this year, next year and the year after," said Steve Levy, director of the Center for Continuing Study of the California Economy.
Tax revenues are down, and will be next year, but the legislators keep projecting rosy budgets for next year that aren't going to materialize. If/when they have to make more cuts to K-12 public education, teachers are going to be laid off. Higher education like the UC and CSU system raised tuition 30% this year. They are going to have to raise it again for the Fall 2010 semester and maybe even as early as the Spring 2010 semester.
Even bigger is the CalPERS budget problem. CalPERS is the pension fund for state government workers and it lost 41% of it's balance last year. According to state law, if CalPERS runs out of money to pay pensioners, then it comes out of the general fund. 3.3 Billion came out of the general fund to cover loses by the pension fund this year. This is a pretty widespread problem in other states affecting their budgets, with some state's pension funds being unable to ever make back enough to pay the expected benefits.
The losses were typical of what pension funds suffered around the country. State and local government officials had predicted before the crisis they would have $3.6 trillion in their accounts by now, according to the Center for Retirement Research at Boston College. Today, they are $1.2 trillion short of that mark.
Pension funds were not equally affected. Officials in Arlington County, for instance, say their funding levels remain above 90 percent. And even those that suffered huge losses say they have enough money to payout retirement benefits for years to come. Virginia, for instance, still has nearly $43 billion in its accounts.
But Virginia officials now estimate the funding level of its major pension funds will sink to about 60 percent by 2013.
From there, the deficit will grow even wider, according to Kim Nicholl, the national director of PricewaterhouseCoopers public sector retirement practice. Even if public pension funds were to hit their 8 percent investment targets every year, Nicholl calculated they would have less than half of what they need by 2025. This is because a greater share of the population will be retired and those who are will live longer, thus collecting benefits longer, she said.
