Christie Lie on NJ Pensions

Even by the Costanza theory where “it’s not a lie if YOU believe it” what NJ governor Chris Christie said on Fox News Sunday was a lie:

When confronted with a dodgy number on New Jersey’s unfunded pension liability he mentioned his proposed reforms and boldly averred that they would “take that $54 billion and in 30 years it would cut it in half.”

However, only five days earlier he proclaimed:

The governor was being disingenuous here as well. He mentions 11 state pension plans going bankrupt by 2020, just nine years from today, and New Jersey being among them.  New Jersey is certainly on professor Josh Rauh’s list but their year is 2018, just seven years from today.

Why didn’t governor Christie expand on the drop-date year and claim his reforms will push that 2018 date to another number he picks out of the air as convenient for his purpose at the time?  Because saying that in 30 years the deficit would be $27 billion was more suitable for the MSM echo chamber where answers rarely get intelligently questioned.

Who will be around in 30 years to check the number or take any blame?  Was there some study done that came up with a $27 billion underfunding in 2041 post-reform?  In any case, what will $27 billion buy in 2041?

Governor Christie does not know the answers yet he will have you believe he does.  That’s what makes him a liar.

12 responses to this post.

  1. Posted by muni-man on January 19, 2011 at 12:16 pm

    CC’s just throwing darts at the board, after all he’s a pol. As long as he continues to refuse to contribute anything to the plans unless the unions make the concessions he wants, I’m
    satisfied for the time being. The real biggie for towns (since the state is on the hook for teachers’ pension contributions) now becomes the healthcare contributions for muni workers.
    They should cap all state/town contributions to $6,000/employee/yr. (for a BASIC plan only),
    and let them pay for anything above that, especially if they want their current over-the-top
    plans with $2/co-pays and the like. That should make the 2% tax cap attainable.

    Everybody in this country wants good healthcare, but no one wants to pay squat for it – just
    a giant game of trying to shift the cost to the next guy, with the big insurance outfits in the middle very content to skim off gazillions for essentially doing nothing. Some form of healthcare rationing will be a fact of life within 5-10 years for sure. Healthcare is on the same trajectory as these unsustainable pensions.

    Reply

  2. It’s a good thing that Christie is starving the Plans. Until it’s clear to everyone (especially the Current employees) that they can’t possibly get promised pensions, change won’t happen.

    The change we desperately need is a reduction in pension accruals for FUTURE service to a level no greater than what typical Private sector workers get from their employers. Even for the few lucky Private sector workers with DB Plans, the accrual is typically 1% per year of service, not the 2 or 2.5% common in Public Sector Plans. Hence for FUTURE service only, we need a 50+% reduction in the rate of accrual, NOT the do-nothing 9% rollback of the enhancements granted in 2001

    Don’t be fooled by the misinformation put forth by Public Sector Unions. The value at retirement (at EVERY pay level, of just the upper levels) of the employer (meaning taxpayer) paid-for share of the typical Civil Servant’s retirement package (pension + retiree healthcare subsidies) is ALWAYS 2,4, even 6 times greater than their Private Sector counterpart when retiring at the SAME age and with the SAME years of service ….. and with Taxpayers (NOT the employees) funding 80-90% of the retirement costs.

    This is patently unfair to taxpayers and MUST change. If starving the Plans is the means to accomplish that change, so be it.

    Reply

    • Posted by muni-man on January 19, 2011 at 4:17 pm

      Christie has proposed a lot of what I put in my initial letter to him 5 months ago below. I continue to send him other pertinent info periodically, but he knows what has to be done while still laying down some political cover for himself. Absent massive benefit reductions, the plans are toast and I believe he knows this. The entire NJ Legislature is up for re-election this Nov. If voters turn over control to the GOP as I think could very well happen, he’ll be able to accomplish his reforms. If the Dems stay in control, he simply refuses to contribute to the plans, hastening their demise.

      ~~~~~~~~~~~~~~~

      August 5, 2010

      The Honorable Chris Christie
      Governor – State of New Jersey
      P.O. Box 001
      Trenton, N.J. 08625-0001

      Dear Governor Christie:

      My suggestions (effective 1/1/2011) for dealing with pension/benefit issues are:
      1. Eliminate all COLA’s. Pensions remain frozen permanently as of 12/31/10 for current and future pensioners. This alone will bring huge reductions in future pension liabilities.
      2. Reduce future accruals for fire/police to 2%/yr. and all others to 1.2%/yr. This is perfectly permissable under the anti-cutback provisions of ERISA and should also apply to public employees.
      3. Hike pension contributions for everyone by 2%/yr.
      4. Initiate a permanent 2% pension reduction for every year fire/police collect under age 55 and teachers/ all others who collect under age 62.
      5. Initiate 401k’s for all new hires except fire/police (but including teachers) as of 1/1/2011. Fire/police should be the only ones entitled to a defined benefit pension, provided they contribute 10% of salary/yr. to help fund it going forward.
      6. Cap all pensions at $75,000 for those who don’t have credits over that amount as of 12/31/10 (0% accruals at > $75K eliminates the pension spiking problem).
      7. All employees must pay a minimum of 1/3rd of their actual healthcare premiums. Cap all employer healthcare contributions to a maximum annual amount of $6,000, with employer contribution increases strictly limited annually to the lesser of 4%, or the Healthcare portion increase of the CPI.
      8. Use/lose all vacation time each year (no carryovers). Sick leave reduced to 5 days/yr. (no carryovers). No cash outs for either. Any sick time taken in excess of 5 days/yr. must be accompanied by a valid note from a doctor explaining the sickness, or else the employee doesn’t get paid for those excess days. The abuse of sick leave (both cash outs and bogus ‘illnesses’) is legion and must be stopped.

      The above changes will largely get things back in balance and make the 2% cap attainable. Costs will become much more affordable and predictable and stop the double-digit pension/benefit increases that have been unjustly given to public employees for far too long. If the unions and the Dems refuse to go along, refuse to pay another penny into the pension funds and mount a massive PR campaign (after the Republican mid-term election gains) aimed squarely at the Dems who refused to go along. Name names so they can be voted out in 2011. Voters need to know exactly who the legislators are who continually do the unions’ bidding at the expense of the private sector taxpayer. Public employees obviously don’t mind tax increases since it comes right back into their pockets eventually thru their ridiculous contract increases. Best wishes in your efforts to turn things around for New Jerseyans.

      Reply

  3. Posted by Anonymous on January 19, 2011 at 9:38 pm

    did John Berry write this?

    I can not remember anything as harsh or hatefull as this against corzine or mcgreevy.

    you Lost a lot of cred with this attitude.

    Wow.

    Nasty – FYI – CC didn’t cause this problem.

    Reply

      • Posted by muni-man on January 20, 2011 at 10:22 am

        Keep it up, John. You’ve posted more accurate and interesting info on this pension business than anyone else I’ve read on the web. I’ve learned a lot from your analysis over the months. Thanks.

        Meanwhile, Bloomie wants to get tough with the NYC unions. On last nights’ news he said they can no longer afford the pensions they pay and he wants to raise the age to 65 etc., etc. He did specifically mention that the city did cough up over $7B in the last FY(10?) to fund the plans. Should be closer to $9B for FY11, since it was $7.3B in FY09. He said the city won’t get any help from Albany – same story as in NJ. Should be downright comical when he locks horns with the unions. I predict he’ll basically get diddley from them in the way of concessions, so I guess major layoffs will ensue.

        In a previous blog, someone mentioned that he thought the fire/cops in NYC got at least some of their Soc. Sec. contributions paid for by the city. He’s right. I saw on a FDNY departmental order yesterday that they pay only 4.2% of the full 6.2% of the OASDI (Old Age, Survivors & Disability) on the maximum of $106,800 of salary. So that 2% the city pays for nets them an additional $2,136 income, if they earn at least the maximum taxable amount, which most do. The city doesn’t pay the 1.45% for the Medicare piece. Net, the FD and PD pay 5.65% for FICA while the rest of the world pays 7.65% of taxable pay. I’ve never heard of a situation where an employer pays part of the Employee’s FICA match. Unions gone wild!!!

        Reply

  4. Posted by Anonymous on January 20, 2011 at 2:02 am

    This blog is silly; can’t see the forest from the trees. The big trend is that the current pensions are unsustainable and will be cut.

    Reply

  5. Posted by Anonymous on January 21, 2011 at 9:09 pm

    Muni Man:
    Aren’t FDNY subject to Government Pension Offset and the Windfall Elimination Provision?

    Reply

    • Posted by muni-man on January 22, 2011 at 11:29 am

      I really don’t know, but I don’t think they’re affected by any offset. The offset applies when they (employer + employee) pay only a portion of the full FICA amount I think. Here, NYC is coughing up their full 7.65% employer match and ADDING another 2% for the EMPLOYEE match as well, leaving the FDNY member to pay only 5.65% out-of-pocket, rather than the full employee match of 7.65% everyone else pays. But the full employer and employee matches are being paid which is 15.30% and I’m sure that covers them for full FICA benefits downstream. I don’t think the Fed cares as long as the full 15.30% is paid under the person’s account.

      Reply

  6. Posted by Wedge on January 22, 2011 at 3:32 pm

    The more I read, the more I question numbers. I’m sure you saw this non-partisan report on state pensions http://www.cbpp.org/cms/index.cfm?fa=view&id=3372

    Muni–you have some good ideas, some things that are illegal (reducing pensions or changing age for funds vested).

    Not paying the pensions will never happen.

    I love the footnote that on the Mercatus Center report…”Authors’ calculations. Waring (2008) finds that the mid-point of a public pension’s stream of future benefit payments is around 15 years in the future. Thus, a lump sum payment 15 years hence can be treated as an approximation of the annual benefit liabilities owed by a plan. Following Rauh and Novy-Marx, we compound the reported present value liability forward for 15 years at the expected rate of return, then discount back to the present at the Treasury interest rate. Waring, M. Barton, “Liability-relative investing,” Journal of Portfolio Management 30(4).. I see Vallejo California bond holders are taking 5-20% on the dollars. If you think the state is going to default you’re crazy. (When treasury yields are 1%, yet the historical return for the past 20 years is close to 8.75. How bout this footnote…According to New Jersey’s actuarial reports, the state PERS plan will run out of assets to make its benefit payments in 2013. The plans for teachers (TPAF), judges (JRS), and local PERS employees will run out of assets between 2014 and 2015. The Police and Firemen’s plans and the State Police Plan run out of funds between 2018 and 2019. This calculation is based on the assumptions that the plans experience no gains from investment income, no state and employee contributions, and no changes to the size of benefit payments.(No return and contributions for up to 8 years–yes that would be a problem.)

    Yet in 1961 the top tax rate was 91%. The rich get richer and there is no way they are going to allow a municipal bond default. Even on the pension bonds.

    Reply

    • Posted by muni-man on January 22, 2011 at 4:28 pm

      Finally found JB’s new site I see. Figured you and a few others from the old blog would pop up here eventually.

      1. A benefit isn’t a benefit until it’s EARNED. Reducing future accruals, future age, future COLA’s etc. is perfectly OK since these are prospective and have yet to be earned. Works for the Fed (ERISA’s anti-cutback provision). I agree they ‘theoretically’ can’t touch what you’ve already accrued, but that’s academic since NJ’s plans can’t be salvaged w/o massive benefit reductions. If the unions don’t agree to the needed concessions, the plans fold, it’s that simple. Ultimately, this issue will be likely be decided by the Fed, and if major concessions can’t be negotiated then the Fed will impose it’s own version of a PBGC-style haircut and public plan participants will see benefit reductions of 20%-50%+ depending on how hopeless their plans’ financial conditions are.
      2. The tide is finally changing BIG-TIME against the public unions. Spend
      a little time reading Pension Tsunami. http://www.pensiontsunami.com/
      The 1/21 edition had a number of informative articles about eliminating
      things like collective bargaining/binding arbitration etc. in a number of states with more likely going that route in the future, etc.
      3. Read this one – the Dems might not be so favorable to you guys in the future (like in Nov. 2011 when Republicans probably take control of the NJ Legislature).
      http://online.wsj.com/article/SB10001424052748704405704576064282100893372.html
      4. I’m guessing one more good market downdraft lasting 9-15 months with the subsequent hit to the plans market value (at a time when they’re spewing out ~$8B/yr. in benefits and growing) would be the final nail in the coffin. If the unions don’t play ball with CC, he simply refuses to contribute any more into the plans.

      Reply

  7. Posted by Wedge on January 22, 2011 at 10:13 pm

    Saw it. I do read pension tsunami, but highly biased.

    Current pension accruals are based on age as well. That is there is a predefined age which benefits may be collected, if altered it is a reduction–which will not stand. These are earned when vested.

    As much as many would like to just stop paying, the minute they default on a bond–they have bigger issues. There are pension bonds, there is no scenario in which those bonds will be paid and retirees won’t. Plus the state, at this point, only has about 50 pct ownership of the funds. It is a ponzi scheme.

    COLA is gone, health benefits maybe as well. Employees will have to pay more to get their pensions. The state will have to bond the debt–they can’t eliminate future pensions since it is a ponzi scheme.

    Reply

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