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 [ STATE WATCH ](https://mail.citywatchla.com/index.php?option=com_content&view=category&id=385)

#  California’s Hidden Debt Bomb

Written by Eliot Cohen.

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THINK ABOUT IT -

*Let me tell you how it will be*
*There's one for you, nineteen for me*
*Cause I'm the taxman – The Beatles 1966*

Taxifornia is California's well-deserved moniker. California ranks in the top 1 or 2 States for tax burden. We have the highest income tax rate, our gas tax is also the highest, and our sales tax keeps us in the top 10; only Hawaii has higher electric rates. The rent is high, but the taxation helps make it unaffordable.

There is another hidden, pernicious tax issue that politicians do not want to discuss. It’s the enormous stack of government debt and unfunded promises that taxpayers have already voted for and are already paying for.

A bond issued ten years ago does not disappear because the election that authorized it is forgotten. An unfunded pension obligation does not disappear because it never appeared on a ballot. A revenue bond does not become free because the payment is buried in your water or electric bill.

Debt is not literally a “tax,” but the obligation behind that bond appropriation means a municipal agency has its virtual hand in your pocket as deep as the taxman’s. General-obligation bonds are repaid from tax revenues. School bonds appear on property-tax bills. Pension shortfalls require larger government contributions, paid for by even higher taxes. Water and power bonds are serviced through rates. Other obligations compete with police, fire protection, roads, parks, and basic services for increasingly scarce public dollars, and it seems the Fire and Police always lose, and housing first always wins.

In practical terms, much of government debt is taxation deferred into the future. Let’s start with our tax-and-spend supermajority in Sacramento. As of July 1, California had approximately $72.1 billion in general-obligation bonds and about $9.7 billion in lease-revenue bonds outstanding, for a total of roughly $81.8 billion in state debt. ([California State Treasurer](https://www.treasurer.ca.gov/inside/divisions/PFD/debt-highlights?utm_source=chatgpt.com "Debt Highlights | State of California Office of the State Treasurer"))

But wait, there’s more: California has approximately $37.8 billion in general-obligation borrowing already authorized but not yet issued, plus another $4.7 billion in lease-revenue bonds authorized but not yet issued. That is approximately $42.5 billion of previously approved borrowing still awaiting issuance. ([California State Treasurer](https://www.treasurer.ca.gov/inside/divisions/PFD/debt-highlights?utm_source=chatgpt.com "Debt Highlights | State of California Office of the State Treasurer"))

Then come the retirement promises. The latest published CalPERS actuarial figures showed about $563 billion in assets against $716 billion of promised pension payments, leaving approximately $153 billion of unfunded accrued pension liability. CalPERS in fiscal 2025-26 estimated its funded status to approximately 85% of its needed future obligations. ([CalPERS](https://www.calpers.ca.gov/documents/facts-funding/download?inline=&utm_source=chatgpt.com "2024-25 CalPERS Facts at a Glance: Funding (PDF)"))

California State Teachers Retirement System adds another $82 billion of unfunded actuarial obligations, according to its June 30, 2025, valuation. ([CalSTRS](https://www.calstrs.com/files/97665cb5f/DB-Valuation-2025.pdf?utm_source=chatgpt.com "Defined Benefit Program Actuarial Valuation as of June 30, 2025"))

California also owes health and dental benefits to retired state employees. The State Controller currently estimates the net unfunded retiree-health liability at $77.8 billion. ([State Controller's Office](https://www.sco.ca.gov/eo_pressrel_27555.html?utm_source=chatgpt.com "Press Releases"))

Put those figures alongside the state's outstanding and already-authorized bond debt, and you get a rough public-sector obligation stack approaching $437 billion.

The City of Los Angeles' own debt schedule showed approximately $35.8 billion of total City debt as of November 2025. Only about $950 million was conventional general-obligation debt, and about $1.1 billion consisted of lease obligations. The giant component, approximately $33.7 billion, are revenue bonds, primarily associated with the Department of Water and Power, Airports, and other enterprise operations. ([City Clerk Los Angeles](https://cityclerk.lacity.org/onlinedocs/2025/25-1431_rpt_cao_12-03-25.pdf?utm_source=chatgpt.com "REPORT FROM"))

Nevertheless, you are paying for this debt. Your electricity bill. Your water bill. Your sewer bill. Airport and solid-waste fees. The debt service is embedded in the price of the government service you use.

The City's own report also identifies roughly $14.5 billion in overlapping debt, including obligations issued by other public agencies (school districts, water agencies, special tax districts) that share portions of the same tax base. That is why looking only at City Hall's general-obligation debt gives taxpayers a rosy but incomplete picture. ([City Clerk Los Angeles](https://cityclerk.lacity.org/onlinedocs/2025/25-1431_rpt_cao_12-03-25.pdf?utm_source=chatgpt.com "REPORT FROM"))

Then there are Los Angeles retirement obligations. The Los Angeles City Employees' Retirement System reported an unfunded actuarial accrued liability of approximately $7.014 billion in its latest valuation. ([LACERS](https://www.lacers.org/sites/main/files/file-attachments/lacers__actuarial_valuations_for_retirement__health_benefits_combined_2025.pdf?1762795510=&utm_source=chatgpt.com "Los Angeles City Employees’"))

Los Angeles County's retirement system is much larger. LACERA's 2024 actuarial valuation reported $18.139 billion of unfunded pension liability, with a funded ratio of 80.9%. ([LACERA](https://www.lacera.com/sites/default/files/assets/documents/financial_report/actuarial_valuations/2024_actuarial_valuation_report.pdf "Actuarial Valuation Report 2024"))

And County retiree healthcare is worse. Its actuarial accrued liability was approximately $24.74 billion, backed by only about $3.98 billion in assets, leaving approximately $20.76 billion unfunded—a funded ratio of just 16.1%. ([LACERA](https://www.lacera.com/sites/default/files/assets/documents/board/2025/BOR/2025-04-02-bor-agenda.pdf?utm_source=chatgpt.com "IN PERSON
& VIRTUAL
BOARD
MEETINGAPRIL 2, 2025 AT"))

Those three City and County retirement shortfalls alone total about $46 billion. Again, that does not mean Los Angeles must write a $46 billion check tomorrow. But someone has to fund the difference. That someone is YOU!

If investment returns disappoint, government contributions must rise. If salaries and benefits rise faster than assumed, contributions will rise. Those government contributions will come from budgets that otherwise fund police officers, firefighters, street repairs, parks, sanitation, and infrastructure. This is how yesterday's promises become tomorrow's service cuts or tax increases.

California is adding new debt while already grappling with structural budget problems. The Legislative Analyst's Office has warned that California's fiscal condition is overextended, even during a period of unusually strong revenues. The May budget revision relied on roughly $20 billion in reserve withdrawals and suspended reserve deposits, plus another $4 billion in borrowing, while the administration still projected a structural deficit of approximately $14 billion for 2026-27. ([Legislative Analyst’s Office](https://lao.ca.gov/Publications/Report/5187?utm_source=chatgpt.com "The 2026-27 Budget: Initial Comments on the Governor's May Revision"))

Yet voters are being asked for more, and next year our collective governments will ask for even more, piling on debt on top of debt on top of taxes.

Proposition 1 authorizes $11.25 billion in housing bonds for vets. The General Fund is expected to pay approximately $500 million to $600 million every year for about 25 years. ([Legislative Analyst’s Office](https://lao.ca.gov/BallotAnalysis/Proposition?number=1&year=2026&utm_source=chatgpt.com "Proposition 1 [Ballot]"))

Proposition 38 asks taxpayers to borrow another $8.4 billion for medical research, costing another $500 million to $600 million annually for approximately 20 years. ([Legislative Analyst’s Office](https://lao.ca.gov/BallotAnalysis/Proposition?number=38&year=2026&utm_source=chatgpt.com "Proposition 38 [Ballot]")) This is like betting on a penny stock, and there is no assurance of a payback.

Together, those two measures alone could commit roughly $1 billion to $1.2 billion every year to additional debt service for decades. And that is before adding billions of dollars of proposed local school, college, municipal and special-district bonds across California.

This matters for another reason: California has built a tax structure heavily dependent upon a relatively small population of extremely wealthy taxpayers. Now the state is testing how willing these highly mobile billionaires are to have 5% of their net worth disappear into the tax collectors’ pockets.

Proposition 40 would impose a one-time 5% tax on billionaire wealth. Supporters argue it could generate tens of billions for public services. The Legislative Analyst agrees that the initial windfall could be enormous.

But the Legislative Analyst also explicitly acknowledges the danger: billionaires may leave California, causing the state to lose their future income-tax payments. The LAO estimates those behavioral responses could reduce state income-tax revenues by up to nearly $1 billion annually on an ongoing basis. ([Legislative Analyst’s Office](https://lao.ca.gov/BallotAnalysis/Proposition?number=40&year=2026&utm_source=chatgpt.com "Proposition 40 [Ballot]"))

Bloomberg reported that at least six billionaires left California before the January 1 residency cutoff, with advisers expecting others to follow. Fortune magazine calculated that six widely reported departures represented roughly $27 billion in potential revenue under the proposed 5% tax.

That does not mean $540 billion in cash was packed into moving vans and removed from California. What may be more important: the taxpayer. California can collect a spectacular one-time tax while simultaneously reducing the future stream of capital-gains and income-tax revenue on which its budget increasingly depends. Furthermore, billionaires employ 100s of people, and when they move, that entire economic ecosystem collapses.

Even Governor Slick-Hair Newsom has warned that the proposal could produce a one-time windfall, followed by years of lost revenue as taxpayers relocate. ([Bloomberg](https://www.bloomberg.com/news/articles/2026-01-29/california-wealth-tax-will-cause-exodus-of-rich-newsom-warns?utm_source=chatgpt.com "California Wealth Tax Will Cause Exodus of Rich, Newsom Warns - Bloomberg"))

But that misses the larger fiscal issue. California has accumulated enormous long-term obligations while becoming increasingly dependent on a narrow and highly mobile tax base to finance them. That is dangerous to the state’s ability to pay its future bills.

The next time California voters see a bond measure asking to borrow $500 million, or $10 billion, they should ask a question: How much will this actually cost, and how much are we already on the hook for?

The number printed on the ballot is only the amount being borrowed, not the final bill. A $10 billion long-term government bond can easily require taxpayers to repay $15 billion, or more, over its life, depending on interest rates and the repayment schedule. In the case of California’s proposed $11.25 billion taxpayer-supported veteran housing bond, the Legislative Analyst estimates roughly $500 million to $600 million in annual payments for about 25 years: costing up to $15 billion to borrow $10 billion. That extra $5 billion does not build a single additional house, school, road, or hospital.

And who pays it? We do; Taxifornia’s ever-ready bunny taxpayers are expected to keep reaching into our pockets long after the politicians who authorized the spending have left office. Of course, there is this other problem: what are we getting for all this debt, what are the results?

Every ballot bond should disclose, in large print, the total projected principal and interest payments over its lifetime. It should also disclose the issuing government's existing bonded debt and major unfunded retirement obligations. It should also spell out exactly how the money will be spent and audited, not stolen by the numerous fictional NGOs scams we are all being made aware of.

For an LA resident, the total tax burden is split between immediate taxes and the deferred future tax burden, totaling ~$533.3 billion in state and local obligations ($437B state + $96.2B LA). This adds up to ~$85,000 per active tax-paying household. That will inevitably have to be paid through future tax hikes, fee increases, or public service cuts.

*(**Eliot Cohen** is a longtime civic advocate who has served on the Neighborhood Council, the Van Nuys Airport Citizens Advisory Council, and the Board of Homeowners of Encino, where he was president of HOME for over seven years. A retired Wall Street executive with a 35-year career, Eliot brings a sharp eye to local governance. He critiques the bureaucratic missteps of City, County, and State officials. Eliot and his wife split their time between Los Angeles and Baja Norte, Mexico.)*

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