Christie’s Last Gift

Chris Christie spent part of his last full day as governor of New Jersey depleting the worst funded pension system in the nation for the benefit of political allies by signing S3620 after it swept through the lame duck legislative process in about a month. The bill appears to have been designed for former Camden Mayor Dana Redd, an ally of Christie and acolyte of South Jersey Democratic power broker George Norcross. On Friday, Redd was hired as the CEO of an obscure university governing board at a salary of $275,000.

$275,000 also happens to be the maximum salary that can used for pension purposes in 2018. Three years at that salary would develop an annual benefit of $155,000 ($275,000 x 31/55) whereas without this bill, Politico reports:

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Garden State Crowd-Out

The Manhattan Institute released a report this week warning that:

[a]bsent some unexpectedly robust acceleration of the economy, it is highly unlikely that New Jersey will generate enough new revenues to meet its pension commitments without severely hobbling the rest of the state’s budget. At the same time, allowing its pension system to continue to accumulate debt by not contributing adequately to it will push New Jersey toward a potentially catastrophic failure of its government pensions.

It then goes into some history with these highlights:
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Christie Exit Interview

NJTV is airing one this weekend and, as regards pensions and health benefits for public emoployees, the takeaways are that it’s the one remaining problem that Christie has not solved (albeit a $300 billion problem) and other people do not have the stomach to take it on.
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Selling A Dream

Thanks to some digging by njspotlight we find what the lottery asset lie cost New Jersey taxpayers.

…fees totaling $33.89 million that were paid to Bank of America for its consulting services on the Lottery initiative were not previously disclosed by the state Department of Treasury. What’s more, these were not fees paid as a commission but for time and work spent on completing the project.

NJ Spotlight learned of the payment earlier this week after being provided with documents from Treasury in response to a public-records request.

……

While the transfer did not result in an immediate credit-rating boost for New Jersey, which has one of the lowest debt grades of any U.S. state, Treasury officials pointed to its effectiveness following the recent closing of a state refunding issue. A news release issued by the department earlier this week said the increased investor interest in state bond issues has helped to save taxpayers a total of $47 million since the transfer was enacted in July.

However, the market itself has another estimate on any ‘savings’….

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Breaking News: Alaska Ironworkers Resubmit MPRA Application

In April, 2017 the Alaska Ironworkers Pension Plan of Anchorage, AK filed to cut benefits under MPRA. In October, 2017 they withdrew that application. Today a refiled application popped up on the MPRA website.

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New Tax Law and Unfunded Pensions

Robert C. Pozen had a piece in Marketwatch warning:

Unless states can implement effective ways to circumvent the SALT restriction, they will face much higher political barriers to meeting their unfunded benefit obligations through increased tax revenues. Instead, states will be forced to severely cut spending on public services and/or adopt major reforms of their benefit plans.

The story included a table of the four worst state pension systems with calculations of how much revenues would need to increase or spending would need to be cut in order to close each state’s funding gap. New Jersey had by far the largest percentages:

After dismissing any of these options as unworkable the author settles on:

In short, the new federal restriction on SALT deductions will open up a new window on reforming state benefit plans with large unfunded liabilities. As voters absorb the financial implications of the new restriction, they will probably oppose tax increases and service cuts to deal with these liabilities. Instead, they will pressure elected officials to renegotiate benefit plans to the extent legally permissible.

There are a few quibbles I have with this position based primarily on my experience observing how a local government operates.

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Pensions-Reboot? (Continued)

Sherrod Brown introduced a bill calling for loans to pensions.  While I applaud the effort, this bill just reinforces the reason I went into economics initially, laughter.  The proposed bill suggests a loan of about three percent while the eligible investments have a return of about two and a half percent. The funds start the loans with a loss of half a percent.  Simple interest calculations would suggest the NJ PERS fund lost $7.5B upon signing the loan documents.  Further, since the retirees do not contribute, the loan is repaid from the contributions of the active members further diluting their retirement.  Do the active NJ PERS members understand they reduce their retirement by $7.5B?  Gentle reader, this is a kinder-care proposal to a big-boy problem.

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