"Wall Street is not panicking, so that's a good a sign," Chiang said Tuesday. "Because this number is manageable, they want to see the state of California put together a prudent plan."
On Monday, Chiang's office released results of a study by an actuarial firm that showed the long-term liability of $47.9 billion for the more than 376,000 workers and retirees could be cut to $31.3 billion if the state "prefunds" the expenditures, that is, sets aside money to fund future benefits and uses investment income from the fund to offset costs.
Last year, an estimate by the legislative analyst's office placed the long-term cost of state government retiree health care between $40 billion and $70 billion.
Public agencies and the state typically handle retiree benefits on a pay-as-you-go basis, or as costs are due annually. New federal accounting rules require states and local governments to disclose future obligations for retiree benefits other than pensions.
Chiang said he considers prefunding to be the key to reducing the projected burden of retiree health benefits. "People have come to the realization we're going to have to prefund and they're being smart about it," said Chiang, adding that pensions have been prefunded for decades.
The California Public Employees' Retirement System in March created a trust fund to help the 1,100 agencies that receive health benefits through it to prefund the future costs of those benefits. CalPERS is sponsoring legislation to allow all public agencies to participate in its prefunding program.
"What the controller did for the state is what all cities and local governments are doing or will have to do very soon, and that's to find out what their long-term financial obligation is for their retiree health benefit," said CalPERS spokesman Edward Fong. "Most government agencies don't know."
CalPERS said Monday that Thousand Oaks in Ventura County became the first government agency to enroll in the prefunding plan. Fong said other agencies have expressed interest, but it takes time to complete the application process, which includes an actuarial evaluation.
by Victoria Colliver, San Francisco Chronicle
May 9, 2007