Analysts: Gov. Brown's Plan To Pay Down Pension Debt Needs Further Review

The Brown administration has plans for an innovative money swap that could pay off billions in pension debt over the next two decades, but nonpartisan analysts say the proposal isn’t fully cooked.

The plan would borrow $6 billion from this treasury fund that’s essentially the state’s main checking account—it’s holding tens of billions of dollars, but doesn’t earn much interest. State finance director Michael Cohen says CalPERS can invest that money at a much higher rate of return and it’ll reduce the state’s pension liabilities.

"We’re able to lower our long-term contribution rates by an average of 2.1 percent of payroll," Cohen says, "that’s savings of 11 billion dollars over the next number of years.""

The state would spend more than $400 million dollars this year, the first of about eight years of payments for the loan.

But a report from the state’s Legislative Analyst’s Office says the Brown administration hasn’t conducted fiscal or legal reviews that would typically accompany such a complex financial maneuver. Nick Schroeder co-authored the report.
 
"It’s possible that the state can get savings from this proposal," Schroeder says. "In fact, we think it’s probably highly likely, but really there just needs to be more analysis done."

And the clock is ticking. Lawmakers and the governor have less than a month to agree on a budget.