Just when you thought the state of California couldn't possibly receive any more bad economic news:

The nation's largest public pension fund reported a dismal 1 percent return on its investments, a figure far short of projections that will likely add pressure on California's state and local governments to contribute more, officials said Monday.

The California Public Employees' Retirement System reported its returns for the fiscal year that ended June 30. The 1 percent return is well below its projected annual return of 7.5 percent.

That's below the inflation rate. It should also be a wake-up call. Many states have been putting off plans to address pension shortfalls by continuing to bank on wildly optimistic rates of return. This news about CalPERS's dismal return on its investments should force state pension funds to start dealing with reality. (Note that California's other big pension fund, CalSTRS, which is responsible for teacher pensions also posted an abysmal 1.8 percent return on their investments.) Meanwhile, Sacramento is in such denial they're currently consumed with a $100 billion high speed rail boondoggle.

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