I said it last year when the PEW Center for the States released a report totaling up liabilities and assets for government employee benefits across the nation as of 2008. After interpreting the numbers, New Jersey is in the worst fiscal shape of any state.
This year I’ll add that New Jersey is likely to be the first state to default on pension payments. I came to that conclusion after listening to Governor Chrisite’s radio ad to lure businesses from Illinois which included:
Since the ad only ran in Illinois maybe he was referring only to businesses in Illinois who decide to move to New Jersey and get a special tax freeze. Then again, he didn’t mention anything about the highest property taxes in the nation which he would not be raising himself but merely sending out the bills to the localities who, technically, would be the ones raising taxes (but those Illinois businesses who choose to bypass Pennsylvania or Iowa in their rush to obtain New Jersey’s quality of life don’t have to know that until they get here).
But, based on past performance, I believe governor Chrisite will be true to his word. He will not raise taxes. He will try to claw back some benefits by making retirees pay a substantial cost of their health care premiums though he won’t be able to. He will never fund the current pension plan adequately and, as predicted, it will go bankrupt by the end of his second term, if there is one.
Illinois is a mess. California is a mess. But those states are making news by taking drastic steps to fix their problems. New Jersey? They’re making their fiscal irresponsibility the cornerstone of their marketing campaign: “move to New Jersey and avoid your responsibilities with us.” Which is the major reason why, when the state bankruptcy bill passes, New Jersey will be the first in line at the courthouse door.
Posted by Wedge on January 26, 2011 at 8:42 pm
John, I’m curious how such a failure would affect NJ’s bonds. It would seem the only legit way out of the pension debt is to bond it over many years
Posted by burypensions on January 26, 2011 at 8:55 pm
Interesting dynamic there. If NJ does default on pension payments then bondholders could be very happy since they will have a competitor for tax dollars eliminated.
Posted by muni-man on January 27, 2011 at 12:16 pm
JB, muni bonds/bond funds are already off 8-12% in the last couple months which, unlike stocks, is a huge downdraft.
More selloff is likely too, especially when a couple of major cities hit the wall. I agree that the pensions are a huge overhang on the bond market and if NJ defaulted there would be a vicious selloff, then a smart rebound over a year or two as the market adjusts to the fact that NJ’s pension millstone has finally been removed. The market will like it in the end because the uncertainty has been removed.
The Steinberg article sums things up very nicely about where things stand. I am curious though about your comment that Il. and Ca. are taking drastic steps to fix their problems. Il. simply appears to be ignoring reality and doing the tax-gouge/pension bonding thing one more time as a pension stopgap, while Moonbeam doesn’t seem to be doing anything concrete so far in Ca. Says he won’t raise taxes w/o voter approval – wonder what he does if the sheeple out there vote down what is sure to be a raft of new tax proposals floated by him this summer?
Posted by burypensions on January 27, 2011 at 12:46 pm
I was going to add that though CA and IL were doing stuff, it was stupid stuff. More POBs, more taxes, etc. They weren’t taking a clear-eyed view either, but
at least they were making attempts however misguided. Christie waving off $3.1 billion in an instant and proposing weak reforms (outside of the COLA freeze which likely won’t stick)
fall under the category of ignoring the problem.
Posted by muni-man on January 27, 2011 at 1:25 pm
JB, thanks for the clarification. CC is about the only one trying to actually bring the issue to a head. Eventually the unions will realize they’re boxed in as
the Steinberg article makes very clear and will accept deep cuts or watch their plans go under.
Posted by Frank Keegan, Baltimore, MD on January 26, 2011 at 10:48 pm
NJ already bonded to “solve” it’s pension crisis. 20 years ago. I think you’re still paying on them. So much for that solution.
Posted by burypensions on January 26, 2011 at 11:11 pm
It was 1997 when Whitman bonded for $2.7 billion. $2.2 billion went into the plan and $.5 billion into the budget. The deal was that earnings on
the pension money were going to repay the bonds when payments started coming due – in 2009. They didn’t.
More here: http://blog.nj.com/njv_johnbury/2009/02/pension_obligation_bomb.html
Posted by Javagold on January 27, 2011 at 2:03 am
so has the state been paying that $750 million each year ???
Posted by burypensions on January 27, 2011 at 9:52 am
According to what Paul Mulshine found:
http://blog.nj.com/njv_paul_mulshine/2011/01/whats_wrong_with_this_picture_2.html
it was $212 million in 2009 and he can’t find what it was in 2010. Even the payment stream may be structured to pay more later.
Posted by Larry Littlefield on January 27, 2011 at 2:31 pm
“Which is the major reason why, when the state bankruptcy bill passes, New Jersey will be the first in line at the courthouse door.”
But not the last, for the reason described in this article. No state would be in a position to pay its debts and pension liabilities by sacrificing its tax base and quality of life, if people and businesses could just move to places that dump those liabilities as if they were businesses run by business executives. Other states would either go bust to avoid having a run to the exits, or go bust because of a run to the exits.
NY’s taxes are higher than NJ, if measured as a share of income. If NJ gets their first, NY should be next in line — depending on NJ’s outcome.
Which reminds me, what level of sacrifice would a court require in exchange for a state getting out of its obligations? The same conditions imposed on NYC in the 1970s?
o No infrastructure maintenance.
o 50 kids in a class, no teaching materials, and the lowest paid teachers in the region.
o By far the highest taxes anywhere.
o Letting bag ladies die in the street.
o Laying off one-third of the police while crime soars, and many firefighters as fires spread.
o Parks filled with garbage.
Is anyone prepared to impose this on suburban and Sunbelt America, or just NYC and (more recently) Camden?
Posted by Tough Love on January 27, 2011 at 8:39 pm
It would be terribly unfair to totally wipe out ALL Public Sector pension accruals.
However, it would be quite fair and wonderful to see them reduced to a the level (as a % of pay) that Private Sector taxpayers get as pensions from THEIR employers.