In addition, Newsom wouldgive an extra $2.9 billion over four years to the California StateTeachers' Retirement System, on top of the $3.3 billion paymentrequired for next year. (Photo: Bloomberg)

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(Bloomberg) –California Governor Gavin Newsom didn't campaign onbolstering public pensions, but they figure prominently in hisfirst budget.

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In the spending plan for the fiscal year beginning in July, heproposed making an extra $3 billion payment to the CaliforniaPublic Employees' Retirement System (CalPERS) to pay down what thestate owes to the fund — a debt that grows each year.

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That's on top of the $6.8 billion contribution California isrequired to make to the nation's largest public pension, accordingto the budget plan released Thursday.

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In addition, Newsom would give an extra $2.9 billion over fouryears to the California State Teachers' Retirement System, on topof the $3.3 billion payment required for next year.

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By trying to pay off as much of the unfunded liabilities upfront, the state could collectively save about $14.6 billion over30 years. That's because unfunded liabilities grow at the same rateas the pensions' expected investment returns, which compensates thefunds for gains they would have received if the money had been usedto buy stocks and other assets.

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Newsom, in a Sacramento briefing four days after assumingoffice, called the additional funding an historic step. Hispredecessor, Jerry Brown, was the first in 2017 to propose an extraCalPERS payment, though his $6 billion infusion relied on a loanfrom an internal investment account, not on general-fund budgetdollars.

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Yield penalty shrinks forCalifornia. (Chart: Bloomberg)

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California's finances are prone to booms and busts because ofits reliance on taxing the wealthy, and the “key” to dealing withthe volatility is to “stack away as much money as you can and payoff as much debt as you can,” Newsom told reporters. “That's aboutbuilding resiliency.”

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The moves continue the work under Brown to curb the growth inCalifornia's prodigious pension and retiree health liabilities,which tally $256 billion, budget documents show.

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Even as California enjoys rising revenue and surpluses amid aneconomic boom, pressures to meet promises made years ago continueto mount. The required CalPERS payment for the next fiscal year ismore than double the amount a decade ago.

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The Democrat would also give school districts relief from theirpension payments– $3 billion. This would provide “immediate relief”and reduce their contribution rates by half a percentage point,according to budget documents. California school districts facesignificant financial obstacles partly because of rising retirementcosts, Moody's Investors Service said.

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