California begins the public sector spiral

LA Times: The board of California's largest public pension fund approved a plan Wednesday to lower its estimate of future investment returns — a move that will require taxpayers to pay billions of dollars more than expected over the next decades.

For years, the California Public Employees' Retirement System has estimated it will earn an average of 7.5% or more a year from its investments. Under the new plan, the pension fund will slowly reduce that rate to 6.5%.

The board voted 7 to 3 on Wednesday to approve the plan that will reduce the rate in small increments over the next 20 years.

With investment income contributing less to the cost of government worker pensions, taxpayers must pay more.
Those boosts are in addition to recently announced increases of 50% to the rates that CalPERS charges cities, the state and other government agencies. Fast-rising pension costs have already forced many cities to cut library hours, street repairs and other services. Three California cities — San Bernardino, Stockton and Vallejo — filed for bankruptcy protection in recent years at least in part because of rising payments to CalPERS.

This is just the opening shot.  Public sector hiring will take a hit, more taxes will lower growth, and the mandatory spending eats away at local government budgets.