BOSTON (TheStreet) -- A poster child emerged last week for the developing crisis faced by underfunded public pensions. It was announced that the University of California has a $21 billion unfunded liability for its retiree health and pension benefits.
Within five years, that unfunded liability is projected to grow to $40 billion -- twice the current size of the entire UC budget.
And that's just one school system.
An analysis by the Pew Center on the States found that at the end of fiscal year 2008, there was a $1 trillion gap between the $2.35 trillion states and participating localities had set aside to pay for employees' retirement benefits and the $3.35 trillion price tag of those promises.
Pew's tally is, by its own admission, a conservative one. It uses for data fiscal year 2008, which for most states ended June 30, 2008, and therefore doesn't include the brunt of the market downturn.
A more pessimistic view was presented this month at the National Bureau of Economic Research's State and Local Pensions Conference. Joshua Rauh, an associate professor of finance at the Kellogg School of Management at Northwestern University, and Robert Novy-Marx of the University of Rochester, estimated that public pension shortfalls amount to between $3.2 trillion to $4.4 trillion, depending on how liabilities are calculated. Even such reforms as eliminating cost of living adjustments and increasing retirement ages would likely still leave about $1.5 trillion in liabilities, they say.
For more details about what's going wrong, the alarming deficit in California has been dissected in a report issued by a university task force.