San Diego City and the State of California are in Real Bad Shape

San Diego California

Well, if you are a regular reader of this blog you know what a hit our housing market has taken. But, do you also know how bad San Diego’s finances really are?

Professors say that state pension fund as presently set up have only a 1 in 20 chance of paying their obligations 15 years from now, according to Barron’s.

The city of Vallejo, in the Bay Area, filed for chapter 9 bankruptcy two years ago because its employees’ pay and pensions ate up a staggering 90% of its budget, according to Barron’s.

Economist Chris Edwards of the Cato Institute, using figures from the U.S. Bureau of Labor Statistics, points out that the average salary of state and local government workers is $26.01 per hour, compared to the $ 19.39 in the private sector.

(In a define benefit plan, retirees get a set amount each month, no matter what happens to the fund’s investments. In a defined contribution plan, employees plunk money in monthly, but their pots go up and down with the markets.)

Here’s the rub: a whopping 80 percent of government workers get that guaranteed defined benefit pension. Only 21 percent of workers in the private sector have define benefit plans, according to the Bureau of Labor Statistics

At a meeting last month, one of the officials of the City fund said that if the expected rate of return were cut to 5%, the unfunded actuarial liability would double or triple to $5 billion or $15 billion. Whew! But, the fund’s board members aren’t quite so pessimistic: they think the unfunded liability would ‘just’ double and the required annual contribution rise by 50 percent.

San Diego California