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California Journal of Politics and Policy

Managing Editor: Lubenow, Gerald

Ed. by Citrin, Jack / Cain, Bruce / Noll, Roger

Changing Tracks? The Prospect for California Pension Reform

Vladimir Kogan1 / Mathew D McCubbins2

1University of California, San Diego

2University of Southern California

Citation Information: California Journal of Politics and Policy. Volume 2, Issue 3, ISSN (Online) 1944-4370, DOI: 10.2202/1944-4370.1111, October 2010

Publication History

Published Online:

Though they cover one-tenth of all adult Californians, the state’s two largest pension funds face a bleak future, with a combined deficit in the hundreds of billions of dollars. In this paper, we examine the politics and policies behind the state’s pension train wreck, identifying two primary causes of the crisis. First, re-election minded officials have systematically underfunded the state’s public pensions in an effort to balance the budget. Second, to make up for this underfunding, pension administrators have taken on increasing risk, investing a majority of the systems’ assets on corporate stocks. This voter-sanctioned policy shift has exposed the pension funds, and their government sponsors, to increasing stock market volatility, resulting in growing pension payments at precisely the moment that state and local governments can least afford to make them.

Keywords: California budget; pension reform; fiscal oversight

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