By Ian Mckendry

WASHINGTON (MNI) – California’s pension fund obligations are
increasingly becoming a point of concern, particularly for a state that
is raising taxes and cutting services, leading to what a Stanford
University report estimates is a massive funding shortfall.

David Crane, a special advisor to Governor Schwarzenegger, called
on Californians to support pension fund reform in an article in the L.A
Times Tuesday, after a Stanford University report released Monday
estimated California’s funding shortfall to be over half a trillion
dollars.

The Stanford University report pertains to CalPERS, CalSTRS, and
UCRS, the state’s largest pension funds which administer pensions to 2.6
million Californians according to the report.

The report found the funding shortfall to be $534.9 billion by
combining estimated losses of $452.2 billion from the funds most recent
public reporting which was prior to ’08/’09, and portfolio value losses
of $109.7 billion from June 2008 to June 2009 due to the recession.

“We conclude that California’s public pension liabilities are
substantially understated,” the report said.

California’s debt woes are well documented, with the state
Legislative Analyst’s Office in November projecting that California will
have a General Fund budget problem of $20.7 billion between 2010 and
2011.

“An unexpectedly strong economic recovery theoretically could
reduce the deficits we forecast. Nevertheless, the scale of the deficits
is so vast that we know of no way that the Legislature, the Governor,
and voters can avoid making additional, very difficult choices about
state priorities,” the LAO report said.

March 29, Bill Lockyer, California’s state treasurer, wrote letters
to the CEO’s of Bank of America Merrill Lynch, Barclay’s, Citigroup,
Goldman Sachs, JP Morgan, and Morgan Stanley — all large underwriters
of California General Obligation debt — requesting information on the
underwriters market activities; specifically the trading of California
CDS.

Lockyer said this activity is unnecessarily driving up the cost of
issuing debt for the state.

“California CDS wrongly brand our bonds as a greater risk than
those issued by such nations as Kazakhstan, Croatia, Bulgaria and
Thailand. The perception of risk could adversely affect the price of our
bonds when we go to market,” Lockyer said in his letter.

Lockyer requested a response by April 12, 2010.

** Market News International Washington Bureau: 202-371-2121 **

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