California’s Wall of Debt Linked to Population Growth

By Joe Guzzardi
March 6, 2015

The official report on California’s financial health is that the state is strong, and getting stronger. California ended its fiscal 2014 year with a $1.9 billion cash balance. Controller John Chiang predicted that in the near future California will generate enough money to meet its day-to-day obligations without having to resort to costly Wall Street loans.

Despite Sacramento’s improved balance sheet, dark clouds loom over California’s future fiscal well-being. In a separate, less cheery announcement Chiang revealed that the public pension systems have an unfunded liabilities gap—the difference between assets and liabilities for current and future pensions—which skyrocketed from $6.3 billion in 2003 to $198.2 billion in 2013, an astronomical surge. The debt may be even higher if, as some analysts anticipate, the 7.5 percent assumed asset earnings rate proves to be inflated.

Reporters and some administration officials refer to California’s financial frailty as the Golden State’s “Wall of Debt” which they peg at $26.2 billion. Critics, however, estimate the aggregate liability at $443 billion. Much of the debt has been incurred because of unsustainable population growth that’s plagued California for decades. In 1960, California’s population was about 20 million people; today, it’s approaching 40 million and is the nation’s most populous. By 2050, the California Department of Finance projects the state’s population will exceed 50 million.

More people require the state to build more schools, hire more teachers, employ more administrators, and provide better roads to accommodate heavier passenger and public transportation.

For example, an in depth study of the Wall of Debt shows that California will need $80 billion to fund teachers’ pensions, $65 billion to restore the quality of its infrastructure, and $64 billion to pay for retired state workers’ health care. Insiders warn that the teachers fund could run dry within 30 years, and Governor Jerry Brown admitted that it’s a “disaster ahead.”

Even though Brown promises to explore solutions that would help cut debt sooner rather than later, he may meet resistance from the California legislature. Darrell Steinberg, until recently the California Senate leader, said that while he appreciates Brown’s goal of debt reduction, California must continue to “invest” in its people, especially those “on the margins.” Brown agreed, saying the state can “always do more.”

But can it? While there may be a moral obligation to provide for the needy, it might not be economically viable. Since the Census Bureau estimates that nearly nine million Californians live in poverty, a continued commitment to “invest” in them would add to the state’s fiscal burden. A five-member household is considered in poverty if its income is less than $28,087, a meager amount that will require plenty of government subsidies for families to meet even their most basic living necessities.

As California’s debt increases and the interest payments accumulate, the ability of California to provide for its ever-growing population base diminishes, and the quality of life for current residents erodes.

Fewer people would ease California’s mounting financial and societal obligations, and help the state work its way out of the financial hole it’s dug itself into. Family planning and sensible immigration policies should be the first two steps in California’s long-term debt reduction plan.

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Joe Guzzardi is a Californians for Population Stabilization Senior Writing Fellow. Contact him at [email protected]