... On Sept. 10, 1999, [California legislators] decided that investment gains would cover 100 percent of the cost of retroactive pension increases they granted that day to hundreds of thousands of state workers.
The politicians made the wrong bet -- and the result has been a penalty to California’s budget that has averaged $2 billion a year ever since and that will cost the state billions more for decades to come. Promising that “no increase over current employer contributions is needed for these benefit improvements,” and that the state pension fund would “remain fully funded,” the proposal, known as SB 400, claimed that enhanced pensions wouldn’t cost taxpayers “a dime” because of healthy investment returns.
Since then, the pension system has earned only 75 percent of what it had hoped. Because the state is unconditionally on the hook, the state budget has had to make up the difference. As a result, the state has spent $27 billion on pensions, $20 billion more than Calpers projected.
To finance the $20 billion of extra cost for pensions, the state has cut spending on services and raised taxes. As one example, spending on the University of California and California State University systems declined 18 percent from 2002 to 2012, while state spending on pensions rose 214 percent.
This issue—the huge and still under-appreciated burden on taxpayers of public sector pension benefits—is going to remain front and center for a long time. Politicians make business and investment decisions—in this case overly-generous pension promises—that end up failing spectacularly, saddling taxpayers with the losses. This kind of stuff has got to stop. It's one more good reason for limiting the size and scope of government.