The Daily Beast made up a list of states likely to go bankrupt based on their debt to GDP ratios in 2009. New Jersey came in at number 6. That ranking was based only on regular bonding debt as a percentage of GDP. When you add all debt and rank the states, as I did, New Jersey comes out with a debt/GDP ratio of 33.19%, second only to Hawaii’s 34.49% The average is 14.26%. But there are factors at work in New Jersey’s case that make it the clear favorite to file first.
First off, the numbers are dated. The official pension liability is reported as $34.4 billion when it has recently been pegged at $53.9 billion and that number is severely understated. With no serious effort being made to rein in debts accrued for bonding, pensions, and health benefits the fuses on these fiscal time bombs are running short while New Jersey politicians continue running up the tab.
For example Union County, with a debt of twice their tax levy already and the third highest property taxes in the nation as a percentage of income, will bond to put up solar panels, build two hockey rinks, construct a new clubhouse for one of their golf courses, and continue to run their $2 million musicfest. Nobody blinks. And that’s only one government entity. We have 21 counties and 566 municipalities plus myriad school districts and authorities all willing and eager to bond.
The public senses a problem but after decades of hearing mostly lies from politicians, actuaries, the media, and even themselves they have been neutered powerless to act. Check out this video of governor Chris Christie explaining the need for sacrifice:
He makes a convincing point to anyone conditioned not to think independently. That public employee is being told why he has to sacrifice and and that “everyone is having to make those choices.”
Everyone? Really? Has governor Christie had to skip a meal or a Jets game? Has any campaign contributor been denied a contract or a job if they backed the winning party? After a string of governors (Florio, Whitman, DiFrancesco, McGreevey, Codey, and Corzine) who can best be defined as failures, though each in their own manner. the gravy train still runs out of control, and it’s packed.
Can Hawaii claim that track record? I think not; which is why I see New Jersey crashing first.
Posted by Larry Littlefield on January 29, 2011 at 12:23 am
The Beast didn’t include local government debts, and local government pensions. Since NYC has its own pension system, and NY local governments have a heck of a lot of debts, if The Beast was aware of it NJ would have had some competition.
Thanks again for your analysis of major separate local government pensions, which everyone looking to do a quick list seems to forget about.
Posted by Larry Littlefield on January 29, 2011 at 12:25 am
One other factor. Measured as a share of personal income, which is relatively high in NJ, taxes there — while above average — are far from the highest. New York is the highest, save for Alaska and Wyoming in years with high energy taxes due solely to taxes on energy extraction.
Any other state could solve its budget problems by increasing its tax burden to something less than New York’s. So what is New York supposed to do?
Posted by Tough Love on January 29, 2011 at 2:05 am
John, I like to see your thoughts as to how this will play out as we begin actually falling off the cliff in 2-3 years. E.g. …….
Will they actually do something useful such as a hard freeze on pensions for current workers?
Or a fixed DOLLAR-SPECIFIED cap on retiree healthcare premium subsidy at no more than say 50% of a modest Plan?
Or Put all new workers (as though we should be doing any hiring) in a 401k-style Plan ?
Or huge outsourcing …. 25+% of all current positions ?
Etc.
Posted by burypensions on January 29, 2011 at 10:43 am
Gas tax dedicated to pension payouts is my best guess. Anything else (i.e. federal takeover with forced reductions in benefits) is too complicated to consider ever being implemented. This is a government that runs on inertia.
New people in a 401(k) is the best thing that could happen to them as their money wouldn’t be funding a ponzi scheme. Doesn’t help the plan any since a source or funding
is taken away and it will go bust sooner.
Bottom line: more gimmicks as politicians refuse to confront effectively either the public worker unions or the insurance and pharmaceutical industries. And they’re running out of gimmicks as Corzine found when he tried to do it through toll-hikes.
Posted by Tough Love on January 29, 2011 at 10:54 am
That toll-hike proposal was truly amazing. If I recall, the increases over time were over 500% in CURRENT dollars.
The tolls may have become huge but the ridership would have dropped by 1/2 – 2/3. Adding in fixed overhead, and it’s hard to see how any big new funds would have developed.
I’m actually for a gas hike if the funds were used for NECESSARY NJ highway projects …hey, why not let out-of-Staters pay a good share.
But NOT if dedicated for pensions. The benefits for FUTURE service for CURRENT workers need a 50+% reduction before I can see the fairness of additional funding.
Posted by Anonymous on January 29, 2011 at 1:23 pm
JB, the big issue for me now is for CC to get them to pay for healthcare. That is a much bigger driver of local property taxes than pensions on a per employee basis. It’s a given the plans are gonna fail absent major benefit reductions – whether the Fed gets involved or not is debatable but I think they eventually will and PBGC-style haircuts will be imposed. But this malarkey of them paying 1.5% of salary (if that) for health coverage costing anywhere from $15K-$23K/yr. has to end. Firm caps are needed. They get $6K
to spend how they like on healthcare, the rest comes out of their pocket. REALITY 101. No worries about losing ‘talent’ either since the vast majority are wearing those golden handcuffs. He should use that leverage to the max.
Posted by buddyroo30 on January 29, 2011 at 11:59 am
Moody’s just released their assessment of the top indebted states, and they now included pension obligations similar to what you did:
http://www.reuters.com/article/2011/01/27/us-usa-states-ratings-idUSTRE70Q70Y20110127?feedType=RSS&feedName=domesticNews
Have you seen this? What do you think? How does it compare to your calculations?
Posted by burypensions on January 29, 2011 at 2:52 pm
I remember seeing that before though I the numbers they have remain suspect since they’re taken from the states. That is, NJ is telling them $34.4 billion or $54.9 billion or $18 billion depending on what year they checked when the real number is $150 billion and climbing. If you are to compare states you have to use the same (reasonable) assumptions. They’ve still got a ways to go to get useful numbers out there.
Posted by Javagold on January 30, 2011 at 2:34 pm
the public union achilles heal is the health benefits……they have no leverage at all, Christie/taxpayers need to go after them and HARD, show no mercy and then maybe they will get it thru their thick heads that they better come up with a solution to the pension ponzi scam
Posted by meep on January 30, 2011 at 5:34 pm
I’m thinking that, yes, NJ is in a bad position. But that you are suffering from a cognitive bias in knowing a lot about the NJ situation, and not so much about those other states. You know about the bullshit various local pols are spinning; you don’t really know as much about whatever bullshit may be spun in Hawaii or Arkansas or California. Seems to me that California is well-known for its feel-good boondoggles while it ain’t got the money of — and, unlike NJ, it has a constitutional amendment to at least prevent the raising of further property taxes.
I’m still willing to bet that Illinois goes under first…. if we could define “going under” well enough…
Posted by burypensions on January 30, 2011 at 6:03 pm
Agreed, I’m ignorant on Illinois and California (and Hawaii) internal politics and maybe they’re doing the same or worse
but I can’t imagine that. By my estimate NJ has debts at all levels that exceed our GDP and we’re adding to it
because our political system demands tribute be paid to campaign supporters. The governor we have surely must
be aware of the cancer yet he has the gall to invite others before he’s cleaned house.
Maybe I’m biased by watching Union County, NJ politics and seeing absolutely no sense of urgency. Did I mention they’re bonding about $100
million altogether to put up solar panels, a parking deck, a golf clubhouse, hockey rinks, plus their regular capital expenditures? We had a mild
snowstorm on a freeholder meeting night. Eight freeholders were driven to the meeting that night by county police (one couldn’t make it).
Again, maybe it’s only in Union County where the politicians have completely taken over the government checkbook for their own benefit
and amusement, but I doubt it.
Posted by Tough Love on January 30, 2011 at 6:12 pm
John, Is it possible that a “bad faith” lawsuit for damages could be pursued in NJ at the town, city, county, or State level where (if won by those suing) part of the judgment is that the defendant must pay his/her own legal expenses.
Part of the problem is the faith that that if they’re sued, their legal costs must be paid-for by their employer.
Posted by burypensions on January 30, 2011 at 6:46 pm
It’s not going to happen. You have to embarrass them out of their bubbles and they don’t embarrass easily since they surround themselves with people making big money from the status quo.
The good thing about all these public workers getting fired is that the taxpayer may now get the unions on their side. For years they have been divvying up the tax spoils but now maybe those
unions will take on the lobbyists when they face the hard realities. There are other abusers but I’m working on a lobbyist blog now and that’s where my head is. It needs more research but
I’ve got the youtube:
Posted by buddyroo30 on January 30, 2011 at 9:28 pm
I had another idea for how you might refine your analysis and rank the states another way. Could you somehow consider and include the relative tax burdens of the different states in the ranking? In other words, a state that has a high debt load but relatively low tax burden is arguably in better shape than one that has a high debt load AND an already high tax burden on its citizens and businesses (raising taxes can tend to depress the economy, but it wouldn’t be as bad in a state with a lower tax burden compared to one that has a high tax burden). By including this, NJ could jump way up and ahead of the others, since NJ is generally agreed to have the highest taxes of any of the states in addition to, as you have shown, one of the highest debt burdens. This is something that always gets me — you might think that “Well, NJ has very high taxes, so at least it must not have much debt.” but it is really “You think NJ has high taxes now? You ain’t seen nothin yet!”
Posted by burypensions on January 30, 2011 at 10:18 pm
NJ has the highest property taxes in the nation. An income tax that’s almost 9% at the highest level…Tolls….sewer fees in some municipalities…7% sales tax…various employment taxes (UI;DI;FLI)…and user fees wherever they can sneak them in. I can’t see any state coming close when combined.