STATE SEEKS FIX FOR CRISIS IN PENSIONS PANEL WEIGHS OPTIONS FOR $5 BILLION COST.

Byline: TROY ANDERSON 

Staff Writer

Alarmed that the annual taxpayer tab for teachers' and state workers' pensions and health benefits has soared from $1 billion to more than $5 billion since 2000, California officials called on Friday for fixes to stem the financial outpouring.

The calls come amid growing concern about California's pension crisis, which has deepened over the past seven years as the average county fund has gone from being flush with cash to being at least 9 percent underfunded.

And officials are worried that the state's already massive unfunded liabilities for pensions and retiree health benefits -- estimated as high as $300 billion combined -- will only continue to grow.

But on Friday, a governor-appointed commission charged with addressing the problem said it is committed to finding options before the situation gets even worse.

"We want to make sure that we address now the magnitude of the problem and not saddle future generations with a burden they haven't created," said commission Chairman Gerald Parsky, chairman of the Aurora Capital Group, a Los Angeles-based investment firm.

At a meeting at the University of California, Los Angeles, state Department of Finance Director Michael C. Genest said one option involves simply continuing the current pay-as-you-go approach.

But Genest warned that that approach would continue to eat up a growing share of tax dollars that are also needed to pay for badly needed schools, public safety improvements, and roads and transportation infrastructure.

Another option involves "pre-funding" the cost by borrowing $31 billion and depositing it into a retiree benefit trust fund, eliminating $48 billion in unfunded liabilities for health care costs.

With a "full funding" option, the state would pay $2.6 billion a year into a retiree benefit trust fund, covering the annual health care costs and amortizing the debts.

A final option, known as the "hybrid approach," would couple the pay-as-you-go approach for existing employees with full funding for new employees.

"Such a system might minimize near-term costs while at the same time reducing out-year costs," Genest said.

"Of course, this would mean the state would continue to report an unfunded liability for years to come, but it would not continue to grow with the addition of new employees.

"I urge the commission to include such a hybrid approach among the options you consider."

But John Cogan, a public-policy professor at Stanford University and a member of the Public Employee Post-Employment Benefits Commission, raised questions with the hybrid approach.

Cogan said the proposal repeats the mistake officials have made in the past by over-promising generous benefits to workers that the state can no longer afford.

"To have the governor set up a commission and then for us to propose to do nothing, these liabilities would be a huge mistake," Cogan said.

"I'm concerned the proposal being offered would not reduce the unfunded liabilities that the state has incurred as a result of its retirement plans.

"To me, the central job of this commission is to make recommendations that will reduce that unfunded liability."

The Legislative Analyst's Office presented a report to the commission that estimates unfunded liabilities for pensions and retiree health for teachers, state workers and University of California employees at $95 billion.

That figure doesn't include debt incurred by numerous cities and counties throughout the state.

Former state Assemblyman Keith Richman, a Granada Hills Republican who heads the California Foundation for Fiscal Responsibility, has estimated the unfunded pension and health care liabilities for all city, county and state workers at $200 billion to $300 billion.

Amid the growing debt, Gov. Arnold Schwarzenegger established the 12-member commission late last year to propose ways to fix the problem.

The commission is holding a series of meetings around the state to identify the extent of the unfunded liabilities.

It also plans to review and analyze options for the situation and is expected to recommend a plan to the governor and Legislature by Jan. 1.

troy.anderson(at)dailynews.com

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