Frightening Totality of NJ Pension Crisis

New Jersey will suffer financial collapse when its pension funds are depleted, beginning in 2021. The Court will decide whether hundreds of thousands of retired judges, teachers, and State employees lose their pensions and are impoverished or whether some $8 billion, one fourth of the State budget, will be taken from other, already underfunded purposes.  As was true 20 years ago, most items have been covered in the press, but the frightening totality is still being ignored.

NewJerseyAlmanac.com Op-Ed

You have to go back quite a ways to find a state official going on the record with the real story on the fiscal situation in New Jersey as so many of them are complicit in the collapse. In this case it’s 35 years since Cliff Goldman served as State Treasurer and on today’s On The Record he nailed it:

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Globalization Before Federalization for NJ Pensions

Former New Jersey state treasurer Andrew Sidamon-Eristoff has an opinion piece in njspotlight today that correctly diagnosed the seriousness of the crisis in the funding of public employee pension and health care benefits that New Jersey has neither the means nor the will to address.  Mr. Sidamon-Eristoff believes that the United States federal government which has the means (printing money) is where solutions lie:

A more limited, and perhaps more politically palatable, approach would be to provide a federal interest subsidy for pension-refinancing bonds. There is precedent. The federal Build America Bond program, part of the 2009 American Recovery and Reinvestment Act, subsidized 35 percent of the interest on state and local bonds issued for capital expenditures.

Once again, let’s use New Jersey as an example for how an interest subsidy might work. As of the end of fiscal 2015, New Jersey reported a total state net pension liability (roughly equivalent to the UAL) of $78.8 billion. This is a long-term obligation or debt like any other, with a cost of funds otherwise known as interest. Unlike a mortgage or business loan, however, there is no stated interest rate. Instead, it is imputed as a function of actuarial assumptions and calculations under government accounting rules. For the sake of clarity, let’s call it X percent.

Since New Jersey hasn’t contributed enough to its pension systems each year to amortize its net pension liability (the actuarially required contribution amount or ARC), and investment returns have not made up the shortfall, both the liability and the ARC keep spiraling upward. However, if the state used proceeds from bonds to make a full pension contribution, both the liability and the ARC would stabilize. Although the state would have to pay debt service on the pension bonds, it would come out ahead if the interest rate net of the federal subsidy is less than X percent. This could be assured by keying the interest subsidy to the pension system’s cost of funds. Moreover, the state would derive annual cash-flow savings if the pension bonds had a longer maturity than the pension system’s amortization period.

That’s not happening.

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MPRA Update

The GAO report on high-risk federal government programs had in their PBGC section an accounting of how the Multiemployer Pension Reform Act of 2014 (MPRA) was doing:

As of January 2017, 10 pension plans had submitted 11 applications to suspend benefits under MPRA. (4 applications have been denied, 2 were withdrawn, 4 are under review, and 1 has been approved.)

In checking the MPRA website it looks like those numbers have changed and it is not new applications or decisions on old ones but in the withdrawals.
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GAO on PBGC

The United States Government Accountability Office (GAO) released a 684-page report that “identifies government operations with greater vulnerabilities to fraud, waste, abuse, and mismanagement or the need for transformation to address economy, efficiency, or effectiveness challenges.”

The section on the Pension Benefit Guaranty Corporation (PBGC) covered ten pages with these highlights that included one rather curious recommendation:

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Warning for Next Governor


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Consider the record:

At least it wasn’t diet (or ethics) advice that Christie was dispensing since he did alight on one valid point:

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Underpaid Public School Teachers in NJ

New Jersey public school teachers are underpaid, not overpaid
Report • By Jeffrey H. Keefe • February 15, 2017
Summary: Public school teachers earn 16.8 percent less in weekly wages and 12.5 percent less in weekly total compensation (wages and benefits) than other full-time workers in New Jersey. An analysis of hourly compensation shows that teachers earn 13.7 percent less in wages and 9.4 percent less in total compensation.

So concludes a paper put out yesterday by the Economic Policy Institute (latest 990 filing) with a mission:

This report describes the results of research into New Jersey public school teacher compensation. This research was initiated in response to New Jersey Governor Chris Christie’s attacks on New Jersey teachers’ unions and his allegations that New Jersey public school teachers are overpaid. In our analysis, we seek to answer three questions about teacher compensation in New Jersey:
  • Are New Jersey public school teachers overcompensated?

  •  How do public school teachers compare with other New Jersey employees in terms of pay equity across gender, racial, and ethnic categories?

  • Does participation in unions increase public school teacher compensation? Continue reading

Pension Surprises in NJ Budget?


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Though what is not mentioned is….

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