California enjoys big revenues but warns of retiree benefit costs
The California State Controller’s Office on Monday reported revenues for October were $662.2 million, or 12.3 percent, above budget estimates but warned that the state still needed to tackle the growing cost of retiree health benefits.
Overall, the state’s coffers saw $1.2 billion overflow for the first four months of the new fiscal year, beating estimates by 4.5 percent.
The news comes on the heels of a credit upgrade last week by Standard & Poor’s Ratings Services, which cited a strengthened budget after voters agreed to set aside surplus revenues for the rainy day fund.
State Controller John Chiang reported that while the surplus revenues bode well, the state needed to address “the growing $64 billion unfunded liability stemming from providing health benefits to our retired public workforce.”
“To not only protect taxpayers, but also the retirement security promised to our firefighters, teachers, and other providers of critical public services, we can no longer deny, delay, or equivocate,” Chiang said in a public statement.
From 2011 to 2013, California’s unfunded liability of other post-employment benefits (OPEB), which includes retirement costs other than pensions, grew by 4 percent, compared with an 8 percent decline nationally, Moody’s Investor Service calculated. Overall, OPEB unfunded liabilities make up 32.2 percent of California’s revenues, compared to a state average 15.7 percent.
In September, Chiang referred to OPEB as “a greater elephant in the room,” than pension liabilities, and advocated that California pre-fund its retiree health benefits, much like state pensions. The state currently funds retiree health benefits on a “pay-as-you-go” basis, which only covers the minimum amount as costs are due.
If the state set aside money in a separate trust, the unfunded liability could be cut by tens of billions of dollars, Chiang predicted earlier this year.
In October, income tax collections were $363.5 million, or 8.4 percent, above estimates. Corporate tax revenues totaled $303.6 million, 1,222 percent, above estimates. Sales taxes fell short by $37.4 million, 4.1 percent, for the month.
As of the end of October, California’s general fund had accumulated $17.8 billion of outstanding loans, down $2.6 billion from what the state expected. This was financed by $15 billion of borrowing from internal state funds and $2.8 billion of borrowing from banks and other outside investors.
(Reporting By Robin Respaut, additional reporting by Megan Davies; editing by Andrew Hay)