California Gov. Newsom Suspends Multi-Year Pension Contributions

California Gov. Gavin Newsom is literally making payroll by negotiating with public employee unions for at least a two-year pension funding holiday, despite already facing at least $1 trillion in underfunded pension and other retirement liabilities.

The California State Legislature submitted its 2025-2026 budget on June 15^th, the last day under law. Gov. Newsom then signed the budget on June 27^th, the last day under law. Despite overly optimistic revenue projections, the budget still projects at least a $12 billion deficit, violating the constitutionally mandated requirement for a balanced budget.

The unions have agreed to at least a two-year nonpayment of what is referred to as “other post-employment benefit, or OPEB. This portion of the pension fund pays for lifetime retiree medical benefits. Unfortunately, it already has an $85 billion deficit.

To fund a future cost, retirement plans every year typically make an “annual required contribution,” or ARC. Over time, the annual contributions and returns on the invested capital funds are expected to compound at a high enough rate pay promised benefits. But failing to make the annual ARC, is the definition of “kicking the can down the road.”

There are three major sectors for California public Employee pensions. Even with extremely optimistic investment return expectation of 7.8% annualized without loss over the next 30 years. The best case estimate for taxpayers current underfunding includes:

1) CalPers: covers 2 million public employees and has a $180 billion deficit;

2) CalSTRS: covers 1 million public teachers and has a $84 billion deficit; and

3) OPEB: covers medical care for 3 million and has an $85 billion deficit.

Adding this together, Mountain Top Times estimates that the best case under-funded pension liability is about $349 billion. Given there are about 13.43 million families in California, each California family is currently responsible for $25,987 of unfunded California public employee benefits.

The problem with the best case is that California public employee pension systems’ investment return over the last 20 years has been just 5.5%. In 2022, the pension funds not only failed to make the 7.8% projected return, but lost -7.5%, or about $30 billion.

That $349 billion unfunded pension liability skyrockets as the pension fund investment returns fall, as shown below:.

In addition to violating the Constitution, the State of California has not filed an audited financial statement on time for the last seven years.

Gov. Newsom is trying to shift blame for these dicey financial numbers by blaming President Trump for deporting “undocumented workers” and causing a trade war. But the Mountain Top Times reported that in May, the American economy added 543,000 U.S. born workers, and over 2 million jobs for U.S. born workers since Trump 47 took office on January 20^th.