By David M. Greenwald
More than a decade ago, the Vanguard was among the first (and initially among the only) voices warning of the impending pension crisis in Davis. It took some time, but the city had to make moves to shore up its system of unfunded liabilities.
California itself is facing a problem of unfunded liabilities. At CalPERS alone it went from about $158 billion in the red in 2019 to $163 billion in 2020.
Earlier this year, that led to calls especially by the Republican side of the aisle to tackle unfunded liabilities with surplus monies.
They argue that these should be paid back immediately. But not everyone agrees there is a dire problem. LAO back in January did find “paying down future pension costs could help smooth out a notable increase in costs currently projected for 2022‑23.”
On the other hand, the investment return was about 4.7%—below the state goal of 7% while the benefits paid out went up more than 6.5%.
State Finance Department spokesman H.D. Palmer earlier this year that the state has met its annual pension responsibilities “but has (also) gone beyond that in recent years to bring down our long-term liabilities.”
Joe Nation, a Stanford Professor, warned that the real problem is with the promises that have been made, which he called “a financial time bomb.”
“The bottom line is that virtually every state and every public pension, regardless of where you look, is not in good shape,” he told the Bee in February.
Nation, who uses a different accounting system than the state, sees California’s unfunded liability as being closer to $1 trillion.
Let us be clear—pensions are a real concern and have been for a long time. A lot of people on the left make the mistake of downplaying these concerns—and that is a mistake.
The problem that I see is that in times of emergency, governments have to take on water. That’s part of their job. Where I think the government goes wrong is not in taking on water during tough times, it’s failing to bank the savings during good times.
The COVID pandemic with the economic shutdown could have been a real disaster nationally and statewide. The federal and state leaders deserve a lot of credit for doing what they did to shore up the economy and prevent the pandemic from turning into a depression.
In fact, and this is something we ought to think about more, two weeks ago we learned that the Supplemental Poverty Measure rate in 2020 was 9.1 percent, which was 2.6 percentage points lower than it was in 2019.
Relief payments moved 11.7 million people from poverty, according to the Census data, and unemployment insurance benefits kept 5.5 million people from falling into poverty.
Unfortunately, pension concerns are going to need to take a back seat to more immediate crises.
$15 billion that goes to tackle the climate crisis and more is not going to be a game changer for pensions, but could be impactful on a number of more dire emergencies.
In my view, there are no bigger threats than the two collateral impacts of climate change in California—water and wildfire.
One of the big pieces of the legislation was a $1.5 billion package supporting a comprehensive forest and wildfire resilience strategy statewide, the largest such investment in California history.
We are not talking about raking forests or clear cutting trees, but rather investing in strategies to reduce fuel for fires, reduce dangerous conditions and help restore landscape and create resilient wildlands.
The impact of fires has been growing with lower precipitation and higher heat and winds. The impact is great of course in areas that are high fire danger, but the impact on the rest of the state in the form of smoke and the accompanying health hazards was perhaps underappreciated.
In addition, the state is facing perhaps its starkest water shortage—and frankly the forecasts I have seen do not hold much promise that we will have a wet winter.
The plan calls for $5.2 billion over three years to support immediate drought response and long-term water resilience. California clearly needs to invest in long term water solutions because, even if this current drought abates at some point, the next one is clearly right around the corner.
By themselves these would be emergencies. Combined together, they are disastrous.
But of course we really cannot address water and fire without addressing climate change, which appears to be the driver of our problems. California proposes to do that, investing heavily in an aspirational plan to get gas-consuming vehicles off the road by 2035. And also investing in carbon sequestration.
Skinner’s office said Thursday, “SB 27 will expand California’s carbon removal capability, also known as sequestration, as well as improve the carbon retention of the state’s natural and working lands.”
Skinner said SB 27 “will maximize our capacity to use nature’s own carbon-reduction tools through capture in soil, grasslands, farmland, wetlands, forests and other natural systems, as well as explore cutting-edge technology like Direct Air Capture that mimic this natural process.”
A lot of work on sequestration, the process of capturing, securing and storing carbon dioxide from the atmosphere, is being done at UC Davis.
In addition, the package also includes $3.9 billion to accelerate California’s transition to zero emissions vehicles.
There is a notion that California cannot meaningfully reduce greenhouse gas emissions to impact the world. And that is mostly true—although California does have an disparate individual impact on the global system.
However, what I think California can do well is create systems that can work on a global scale. California is on the leading edge of such technologies such as carbon sequestration, some of which is happening in our own backyard, and also on ZEV (zero emissions vehicles) development deployment.
In this case you can act locally while impacting globally.
In the end, you can always quibble on the details, but, for me, spending money on fire, water and climate crisis is the most immediate need. The pension crisis honestly pales by comparison.