The state Public Employees’ Retirement System (CalPERS) logo on a plaque stating the company’s vision and mission at the regional office in Sacramento on June 26, 2023. Photo by Rahul Lal for CalMatters.

More generous-than-expected raises for California state workers are nudging up the cost of public employee pensions, according to the California Public Employees’ Retirement System.

But, for one year, Gov. Gavin Newsom has a plan to save some money that otherwise would have to be spent on those retirement plans.

He wants to take money set aside 10 months ago to pay down CalPERS’ debt and instead use it for part of next year’s state worker pension costs.

That’ll save the state general fund $1.7 billion, making it a small but important part of Newsom’s plan to manage California’s yawning budget deficit.

There’s one catch: the independent Legislative Analyst’s Office wrote that Newsom’s pension plan “appears unconstitutional” because of the way it relies on a previously scheduled debt payment.

Newsom’s accounting shift is possible because California has been paying down debt to comply with Proposition 2, the 2014 ballot measure meant to put the state’s fiscal house in order. It requires the state to make supplemental debt payments until 2030, even in years when it runs a deficit. Recently, Newsom has been using the Prop. 2 payments to chip away at the state’s substantial pension liabilities, including the $1.7 billion chunk earmarked for CalPERS’ debts in the current budget.

The analyst’s office contends the governor’s new proposal runs afoul of Prop. 2 by using a planned debt payment to “supplant, not supplement, what the state would otherwise have to provide CalPERS in 2024-25.”

The Newsom administration has a different view. “Put simply: it’s the Administration’s position that this proposal complies with Proposition 2,” said Finance Department spokesman H.D. Palmer.

The details on how much California will spend on state government pensions next year — regardless of whether lawmakers go along with Newsom’s proposal — are laid out for the CalPERS Board of Administration this week.

Altogether, the annual bill is expected to hit $8.7 billion. That accounts for raises that drove up the state payroll by about 4.7% last year, almost 2% greater than CalPERS anticipated. The wage increases will add about $124 million to the state’s pension tab.

CalPERS calculates that sum each year based on employees’ wages, how much workers contribute toward their pensions, how much the state chips in, how much it expects to earn over time and how much extra it needs to pay down its past investment losses.

CalPERS owes more money in benefits over time than it has on hand today. As of June 30, it had 72% of the assets it would need to pay out all of the benefits it owes.

Public employees don’t have to kick in money from their paychecks for the fund’s past misses. California Highway Patrol officers, for instance, put 13.5% of their paychecks toward their retirement. The state, meanwhile, is expected to pay a sum equivalent to 71% of a CHP officer’s wages next year both to fund that officer’s pension and to make up for past losses.

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