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If credit card payments were squeezing our budget and our wealthy aunt suddenly left us money, most of us would use the windfall to pay down our debt. That would certainly be the responsible thing to do.
California government should be no different.
That’s why Gov.-elect Gavin Newsom should resist the temptation to spend a supposed state budget surplus on new programs and instead trim the escalating debt for public employee retirement costs.
Newsom will inherit a staggering $257 billion shortfall in state and school workers’ pension and retiree health care funds. It’s money the state should invest now so that there are enough future funds to pay the benefits workers have already earned. The longer the state waits to repay that debt, the greater the cost to taxpayers.
Despite Gov. Jerry Brown’s claim to be a pension reformer, the state’s retirement debt increased during his eight-year tenure. To be fair, he set up repayment schedules for the debt, but those schedules spread the cost over 30 years, leaving future generations to pay for the sins of their elders.
To put the size of the debt in perspective, it’s nearly double the state’s annual general fund tax revenues. Or, for scale using one of Brown’s other legacy goals, the retirement debt is about three times the current cost estimate for building a high-speed rail system from Anaheim to San Francisco.
So when state Legislative Analyst Mac Taylor gushed earlier this month about the annual state budget being in “remarkably good shape” with a forecast $15 billion surplus for the upcoming 2019-20 fiscal year, we had to question that characterization.
The only reason there is a surplus is because Brown kept payments on retirement debt low by irresponsibly stretching them out for decades.
It’s especially appalling when one considers that this debt is for benefit costs for labor workers have already performed. We wouldn’t consider borrowing to cover their salaries, but somehow, it’s become acceptable to make installment payments for decades on their benefits.
It’s unfair to workers, who deserve more solid funding of the retirement systems. It’s unfair to the next generation of taxpayers, who will be saddled with debt incurred by their parents. And it’s disappointing that the legislative analyst has gone along with this charade.
Newsom, when he takes office, should not perpetuate it. He should do what any responsible household would do: Use the “surplus” to reduce the debt.
As Brown repeatedly warns, we’re overdue for another recession, but right now, state revenues are strong. Now is the time to pay down that credit card.
