California bill could add $14 billion in new costs for local governments and taxpayers

In This Issue:

Articles, Research & Spotlights 

• California’s Proposal to Boost Public Safety Pensions by $14 Billion
• Webinar on Public Pension Systems Investing in Crypto
• A Threat to New Mexico’s 2020 Pension Reform
• Louisiana Voters Nix Proposal to Use Pension for a Pay Raise
• Federal Social Security Law Is No Reason to Undo Illinois Pension Reforms 

News in Brief
Quotable Quotes on Pension Reform
Data Highlight
Reason Foundation in the News

Articles, Research & Spotlights

California Bill Could Add $14 Billion in New Costs for Local Governments and Taxpayers

California Assembly Bill 1383, which passed out of the state Assembly and is under consideration in the state Senate, would grant a pension benefit increase to the state’s first responders, but doing so would deal a significant blow to the state’s landmark 2012 reform and add major costs to already stretched local government budgets. Despite strong investment returns over the last several years, the California Public Employees’ Retirement System (CalPERS) remains decades away from full funding, making it a bad time to add even more promises to the system’s $166 billion debt. Newly updated modeling from Reason Foundation’s Pension Integrity Project indicates that the proposed pension increase could cost local governments (i.e. taxpayers) as much as $14.5 billion over 30 years. Instead of granting richer benefits on an already underfunded pension system, lawmakers need to stay the course and protect past public pension reforms. 

CalPERS Monitor: Interactive analysis on the history of CalPERS and the impact of AB 1383

1-Pager: Assembly Bill 1383 Would Drive Up Costs for Local Governments

Webinar: Public Pension Systems Investing in Crypto

The growing financial prominence of Bitcoin and Ethereum has placed public pension systems at a strategic crossroads regarding the inclusion of digital assets in their long-term holdings. A recent Reason Foundation webinar hosted North Carolina Treasurer Brad Briner, Todd D. Kanaster of S&P Global, and Reason Foundation’s Leonard Gilroy to discuss how government-managed pension funds should evaluate and manage cryptocurrency investments in ways that respect the obligations to both retirees and taxpayers.

New Mexico Shouldn’t Abandon Its 2020 Cost-of-Living Adjustment Reform

Facing growing concerns about public pension funding, New Mexico lawmakers passed Senate Bill 72 in 2020, which reformed cost-of-living adjustments (COLAs) for retired government employees. The law was based on a profit-sharing model and ensured that COLAs were adjusted to meet larger pension funding needs. Now, just a few years later, lawmakers face pressure to roll back these reforms. In a new commentary, Reason Foundation’s Brayden Myers explains the importance of the 2020 reform and how harmful unwinding it would be to the long-term solvency of New Mexico’s pension system.

Louisianans Were Right to Reject a Constitutional Amendment to Raise Teacher Pay. Now, a New State Task Force Should Finish the Job 

Louisiana voters rejected an amendment that would have redirected $2 billion from education trust funds to reduce the debt of the teacher pension system to fund a raise for teachers. Reason Foundation’s Steven Gassenberger explains that the proposal relied on speculative “savings” that would have left school districts financially vulnerable during economic downturns. Moving forward, the state has an opportunity to address teachers’ pension and compensation needs through a new task force that should focus on lowering the pension system’s unrealistic investment return assumptions and offering teachers portable retirement options. By treating sustainable pay raises and pension solvency as a unified goal, Louisiana can ensure long-term financial stability while effectively rewarding its educators.

Illinois: Don’t Let Social Security Compliance Become a Blank Check for Pension Benefit Expansion

In a new commentary, Reason Foundation’s Rod Crane warns that Illinois policymakers are using narrow federal Social Security “safe harbor” compliance issues as a “Trojan horse” to push for a massive expansion of the state’s Tier 2 pension benefits. The current Tier 2 structure may be falling short of federal minimum benefit requirements for certain high-earning employees, but the proposed legislative fixes go far beyond what is federally mandated and would roll back important cost-saving reforms from 2011. Before adding more costs to an already severely underfunded pension system, the state should, at the very least, seek formal IRS clarification and address only what is needed to comply with federal regulations.

News in Brief

New Study Finds Public Pension Debt Nearly Triples Under Market Valuation

A new paper by the Hoover Institution’s Oliver Giesecke covering 645 state and local pension plans (about 90% of the national public pension asset universe) finds that while governments report $1.5 trillion in unfunded pension liabilities under standard actuarial rules, that shortfall increases to $4 trillion when liabilities are valued using default-free market discount rates. Assumed returns held steady at 6.86% in 2024, well above the duration-matched Treasury rate of 4.3% that is commonly used to discount liabilities that are guaranteed through strong legal protections, as are government pensions. Under the paper’s market-based discounting of pension liabilities, the national aggregate pension funding ratio falls from a reported 77.7% to 57.1%. Contributions have now exceeded the market-based cost of newly accruing benefits for three straight years. However, governments will still need an additional $71.8 billion annually to keep the market-valued liability from growing, and $174 billion more over 25 years to fully amortize it. Read the paper here.

Quotable Pension Quotes 

“AB 1383 is being watched closely because if the public safety unions can leverage the popularity of their members into undoing Brown’s reform, other unions will follow suit. Boosting pensions would widen the unfunded liabilities — in essence a multibillion-dollar unpaid debt — that still plague CalPERS even with the reform.”
––Dan Walters, opinion columnist for CalMatters, in “California unions want to unwind a landmark pension reform. Who will foot the bill?” July 2, 2026

“I’m someone that is very much an advocate for employees in general. I think that public employees should love their jobs. … But I was very much hoping that the state was going to be helping municipalities with this, because it’s a really heavy burden.”
–– Niskayuna Town Supervisor Erin Cassady-Dorion in “Sweeter tier 6 benefits may test local budgets across New York,” The Times Union, June 21, 2026

Data Highlight

Reason Foundation’s CalPERS Monitor is an interactive analysis of the nation’s largest public pension plan and a summary of the Pension Integrity Project’s latest modeling of a proposal to grant additional benefits to first responders. The analysis finds that a bill currently under consideration in the legislature (AB 1383) could add as much as $14.5 billion in new costs and could drive local safety employer contributions up to 52.7%. See the full dashboard here.

Reason Foundation in the News

“Chicago’s pension crisis is extremely important to the rest of the country because everyone is kind of wondering what happens when the pension system is completely in a freefall.”
––Reason Foundation’s Zachary Christensen quoted in “Chicago pensions face insolvency in downturn, mayoral candidate says,” Financial Times, Jul. 10, 2026

“For most state pensions, they’re not getting outsized returns; they’re taking on a bunch of risk; and they pay fees to limited partners at private equity firms.”
––Reason Foundation’s Leonard Gilroy, quoted in “Amid $41B shortfall, state teachers’ pension cites private equity as biggest drag,” The Center Square, July 1, 2026

“According to the Reason Foundation, 86% of public plans assume returns above their own 23-year average. Over the past 20 years, 84% failed to beat a passive 60/40 portfolio, which delivered 7.9% annually against the public plans’ average of 7.5%.”
Jay Rogers citing Reason in RealClearMarkets,“The Actuarial Fiction Hiding $5 Trillion in Pension Debt,” June 26, 2026

The post California bill could add $14 billion in new costs for local governments and taxpayers appeared first on Reason Foundation.

Source: https://reason.org/pension-newsletter/california-bill-could-add-14-billion-in-new-costs-for-local-governments-and-taxpayers/