[Mariner]

The pension fund (CalPers) is a non-profit completely independent of the State Budget.

[lasereye]

Then I keep hearing that the public retirement funds are underfunded by Trillions which will only continue to grow. Are the retirement funds NOT counted in the budget or how are there twp set of facts?

Yes there's $1 trillion in unfunded pension liabilities.

The reason they can have a $10 billion budget surplus at the same time is that the way government accounting works, the only pension expense is whatever they actually contribute to the pension funds in a particular year. If for example they contribute nothing, then no expense! Unlike corporate pension plans which have an expense regardless of what's contributed.