California Tax War Soon?

Chriss Street, recently Treasurer of Orange County, CA reports on the impact of Moody’s re-evaluation of the pension liabilities of California cities and counties.

Moody’s is (not unreasonably) proposing to calculate future pension fund returns based on high-quality corporate bond rates.

Their conclusion is that when the new rules are applied, the annual cost of pensions will increase from the equivalent of about 50% to 100% of these counties’ net property tax income… With the state already running new deficits on top of the highest income taxes in the nation, it is my belief that California politicians will soon try to over-turn “Prop 13.”

It gets worse, actually. Calpers, which is managing the pension funds, has decided to go for a high-risk portfolio strategy, in the hope of higher returns. As I’ve discussed before, I expect that Calpers’ returns will be substantially less than those proposed by Moody’s.

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