CPC Study Shows Unfunded Pension Liability Will Triple To $328 Billion in 2014, Using Moody's Proposed New Criteria

CPC Study Shows Unfunded Pension Liability Will Triple To $328 Billion in 2014, Using Moody's Proposed New Criteria


Sacramento, California, February 25, 2013

Contact:  press@calpolicycenter.org

California’s state and local government pension plan problems are going to get a lot bigger in 2014 under new criteria proposed to be implemented by credit reporting leader Moody’s.  That’s the conclusion of a new study published by the California Policy Center, which concludes that the total unfunded pension liability for California’s non-federal government employees will nearly triple to $328 billion, or $8,600 per California resident.

Not only will state and local governments face pressure from rating agencies to recalculate their unfunded pension liabilities at much higher values, but for the first time, in 2014 they are going to have to include these liabilities on their balance sheets.

“In 2014,  new GASB rules will require California’s local governments to acknowledge their actual unfunded pension obligations on their balance sheets,” said Mark Bucher, president of the California Policy Center. “Unless they take action now, the finances of many local governments will be devastated, and they will be forced to cut vital services.”

Under the old rules, the study shows, total unfunded liability was $128.3 billion, but Moody’s has proposed that new, stricter rules go into effect in 2014, which will bump the unfunded liabilities up to $328 billion, nearly triple the total.

The study also includes scenarios that validate research done in late 2011 by the Stanford Institute for Economic Policy Research, where, using a 4.5% discount rate instead of Moody’s recommended 5.5% discount rate, the unfunded pension liability for California’s state and local governments was revalued at nearly $500 billion.

The calculations are based on the most recent data available from the State Controller’s office.  Included are downloadable spreadsheets that allow readers to conduct their own analysis using their own assumptions.

Over the next few months, the California Policy Center intends to release follow up studies that will estimate the impact of the new GASB and Moody’s proposed changes on select local government financial statements.

To read the entire study, click on “How Lower Earnings Will Impact California’s Total Unfunded Pension Liability.”

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The California Policy Center is a non-partisan public policy think tank that aspires to provide information that will elevate and enlighten the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at www.CaliforniaPolicyCenter.org.

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