A recent study by the California Public Policy Center concluded that the combined debt owed by California’s state and local government entities is likely to exceed $1.1 trillion dollars. The CPPC totaled the debt of state government ($132.6 billion), public school districts ($49.7 billion), city governments ($68.1 billion), county governments ($22.1 billion), redevelopment agencies and “special districts” ($110.4 billion) and unfunded state and local government pension obligations (from $265.1 to $586.4 billion).
In addition to the eye-popping total, the report also raises interesting points about the nature and amount of the state’s debt.
CPPC argues that current estimates of California’s pension obligations vastly underestimate the scale of the amount of unfunded obligations. State estimates generally assume a rate of return on pension fund investments of 7.5%. CPPC believes a rate of 5.5% or even 4.5% is more realistic. Correcting for this error adds $321.3 billion to pension obligations.
The study also expose the degree to which many local public entities have accumulated what CPPC refers to as “bad debt”: long term debt incurred to satisfy current obligations. These forms of “kicking the can down the road” include lease obligations on property that was publicly owned but sold to generate immediate revenue and fund pension obligation bonds.
Perhaps most disturbing is the difficultly CPPC encountered in tracking down the information necessary to accurately calculate California’s total debt. The time lag on annual financial compilations released by the state comptroller’s office ensures that data related to city and county governments, redevelopment agencies and special districts is nearly two years out of date. More seriously, school districts are not required to, and do not regularly, report the amount of their debt obligations.
The CPPC report presents a new way of quantifying the scope of California’s mountain of public debt. Its alarming bottom line underlines the need for big solutions for the challenges that lie ahead.