Huge costs continue weighing on California finances, report says

Huge costs continue weighing on California finances, report says
Legislative Analyst Mac Taylor, pictured here speaking with reporters in January 2013, and his nonpartisan office released a new report on Wednesday detailing California's $340 billion in long-term costs. (Rich Pedroncelli / Associated Press)

California is facing $340 billion in long-term costs, the majority of which are not being addressed by state leaders, according to a new report from the nonpartisan Legislative Analyst's Office.

While there are plans in place to pay off $140 billion in debts such as infrastructure bonds, the report said, another $200 billion continue to fester and threaten the state's financial health.

The report, released Wednesday morning, shows how gigantic bills for public worker retirements continue to weigh on California even as it turns the page on years of budget crises.

The biggest chunk of the $200 billion -- which is more than all annual state spending in California -- is the $73.7 billion shortfall in the teacher pension fund.

Legislative analysts said replenishing the beleaguered retirement system, which "has not been appropriately funded for most of its 101-year history," should be a priority for lawmakers.

If contributions aren't increased, the fund could run dry by 2046, according to pension officials. At that point, the pensions would have to be paid directly out of the state budget, which could force tax hikes or cuts in government services.

The teacher pension fund needs an additional $5 billion every year for three decades to eliminate the shortfall, according to legislative analysts. Failing to keep pace with the growing costs makes it easier to balance the state budget year to year, but California will face bigger bills down the line.

Lawmakers are currently negotiating a plan to replenish the pension fund by increasing contributions from the state, schools and school employees.

Another long-term cost that remains unaddressed is healthcare for retired state workers, which is pegged at $64.6 billion.

The state could lower its costs by setting aside money in a dedicated fund, rather than just paying the bills out of the annual budget. But that would require $3.6 billion annually, twice the amount the state is currently paying for retiree healthcare.