As Washington has struggled to reform the nation's financial system, the next bubble of bad debt has been building. Rather than subprime mortgage contracts or credit default swaps, the oncoming crisis involves something everyone can understand: pensions.
Residents of Detroit and Chicago are no stranger to exorbitant, unaffordable public pensions. But it's in California where the unfolding debacle could take down an entire state.
Talk about "too big to fail." California has the largest economy in the U.S., and the 12th largest in the world. Yet it bears unfunded pension and health care liabilities estimated to be as high as $655 billion. The role of public compensation costs is staggering.
In a state where median household income is about $61,000, according to Census Bureau statistics, public workers will cost more than $100,000 per employee beginning next year, according to a March estimate from the nonpartisan California Legislative Analyst's Office.
That's just the beginning of the pension mess California has wrought.
In the hopes of providing taxpayers with the public information they deserve, Transparent California categorizes more than 3.4 million salary and pension records -- including the name, job title and total pay of most public employees in the state. In many instances, searchable information at the county and city level is available.
Even a quick summary of the more eye-popping numbers is enough to raise the alarm. In 2012, more than 100 individuals took home more than $500,000 in total compensation; 8,248 raked in more than $250,000; 28,844 cashed in to the tune of $200,000 or more.
At the city level, it's all too easy to see the peril of these kinds of public indulgences. Vallejo spent years struggling through bankruptcy because unions pressured city officials into leaving pensions untouched. As the mayor of Stockton put it, "No city wants to take on the state pension system," familiar to Californians as CalPERS.
Now, Moody's warns that Vallejo is on track to re-enter bankruptcy unless CalPERS is brought to heel. Still in bankruptcy itself, the city of Stockton, along with San Bernardino, faces a similar reckoning.
While municipalities are at least legally permitted to enter bankruptcy, states enjoy no such privilege. Nor will they any time soon. Changing the bankruptcy code requires legislative action, and lawmakers face opposition to state bankruptcy both from unions and from fiscal reformers who don't want to see their state caught in the same trap as Vallejo or Stockton.
And if the state won't stand up to union strong-arming, in many cases, nobody will. How many bankrupt cities can California sustain?
While that's a rhetorical question, we may soon find out the answer if we're not careful. The state's two largest public pension funds -- CalPERS and CalSTRS -- officially face a combined $163 billion in unfunded liabilities, an amount experts agree is modest. As it is, CalSTRS has increased its demands by more than $5 billion per year to cover its debts.
All told, business as usual ensures a dire future for California. Cities will be unable to provide basic safety and transportation services. Campuses will be unable to pay their bills. Investors will lose millions, and lose confidence in the value of California bonds.
Even before a default on its debt obligations, California soon could be plunged into an economic crisis the likes of which the state has never seen.
With a default, the consequences would send shock waves through America's economy -- and the world's. Total U.S. public pension debt now reaches about $1 trillion. If markets and lawmakers think California intends to run to Washington for a bailout, the expectations alone will set off a stampede.
"Too big to fail," in other words, won't save Americans this time -- if indeed it ever did. California created its own pensions mess. Now the time has come to fix it.
Mark Bucher is the president of the California Policy Center.