Controller John Chiang released a new actuarial report last week that shows California faces a $51.8 billion bill to pay for health and dental benefits for state retirees.

The unfunded obligation as of June 30, 2009, grew $3.6 billion from $48.2 billion in the prior year. Unlike state pensions, which are covered by pre-funding and investment returns, California pays for retiree health benefits on a pay-as-you-go basis as the costs come due each year.

The State would need to contribute $2.8 billion in 2009-10 to fully fund its obligation.  But Controller Chiang did not go far enough.  These are contractual obligations that legally are more important than regular legislative budget appropriations.  Chiang should announce that he will prioritize what checks to write to make sure that contracts are honored.

The report can be found here.