Watching the performance of the state's pension manager, CalPers, isn't quite like watching paint dry, but close. It is the largest pension fund in the country--and it has to be given how poorly the state is run up in Sacramento. While it may seem arcane and far away, here is the WSJ's take on why we should watch:
The California Public Employees’ Retirement System returned minus 6.1% for the year ended June 30, the fund said Wednesday. A multiyear downturn could be costly for states, towns and school systems around the country and by extension their residents, leading them to squeeze money from workers, taxpayers or other government services. Calpers’ stock portfolio returned minus 13.1%, while bonds returned minus 14.5%, the pension fund said. (Ed: Private equity made up some of the loss but relying on it is tricky as valuations are being written down left and right.)
The lackluster return will mean California towns, counties and school districts will face higher annual pension contributions during their 2024 or 2025 fiscal year. U.S. state and local pension funds have accumulated hundreds of billions of dollars since the last financial crisis in 2008, thanks to blockbuster returns from an 11-year bull market. Last year, huge gains in public and private equity markets drove median returns to nearly 27%, a 30-year record.
Some states also topped up their pension coffers with tax revenues from the stimulus-fueled Covid-19 recovery. But all of those gains have been outpaced by the growth in the cost of the benefits that state and local governments have promised.
We shall see what the impact on the city budget is going forward. We have been holding on pretty well -- you can look here for the last update from March. I'll get around to addressing the move to raise local business tax rates in a bit, but Calpers' performance this year highlights the variability and risk associated with being tied so closely to the state.
Recent Comments