Wednesday, February 24, 2016

LAO Stops Disputing State Responsibility for UC Pension

The LAO has released a new report on use of Prop 2 money to pay down debt. The report refers to the Committee of Two plan at various points. What it says is mainly descriptive. However, it is perhaps more important to note what it doesn't say. There is no disputing in the report - as LAO has done in the past - that UC's pension is a state responsibility. If it were not a state responsibility in the view of LAO, presumably there should have been a critique over use of Prop 2 monies for that purpose. Any future assertion by LAO that the state is not responsible would be inconsistent with its views as stated in the new report.

Below are the UC segments of the report:

(p. 6) Paying down UC’s unfunded liability for pensions and retiree health benefits would reduce UC’s long-term costs of providing these benefits. As with schools, this action would also increase budgetary flexibility for UC, possibly resulting in more funding for UC programs or lower tuition for future UC students. Using Proposition 2 debt payment funds to address UC’s retirement liabilities could also reduce pressure on the state’s General Fund to support UC operations in the future.
(p. 7) The administration proposes payments of $171 million for unfunded liabilities related to UC employee pension benefits. The funds would represent the second year of a three-year agreement that requires the UC Regents to limit the amount of future employee salaries that may count toward UC employees’ pension benefits. Like the amounts included in the 2015-16 budget, these funds would only be released to UC after the UC Regents have made this change. The UC Regents have not yet taken this action. While the 2015-16 Budget Act did not set a deadline for this action, the administration has indicated it expects UC to make this change no later than June 30, 2016. 
(p. 10) 
We suggest the Legislature collaborate with the administration, state pension systems—including CalPERS, CalSTRS, and the UC Regents—and others to develop a long-term plan for Proposition 2 debt payment funds. Experts from these groups can present their case for how the state may best use Proposition 2 funds, informing the Legislature’s own priorities. 

Many Approaches Are Reasonable. As we have noted, our approach is one of many possible approaches. Other approaches may save more for taxpayers or place more emphasis on benefits for certain groups. For example, some may point out that paying more toward the CalPERS unfunded liability would save the state more, in the long run, than our approach would. Others may want the state to focus less on debt payments that benefit the state General Fund and more on debt payments that benefit schools and UC. For example, using Proposition 2 funds to address UC’s retirement liabilities could, over the long run, result in more funding for UC programs, lower tuition, and reduce pressure on the state General Fund to support UC operations. These are all trade-offs the Legislature would want to consider as it develops a long term plan.

Full report at

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