Laws are not assurances in New Jersey

New Jersey in 2011 passed a law promising to make its legally required, actuarially-determined pension contributions* yet in a bond prospectus this month the state asserts:

“No assurances can be given as to the level of the State’s pension contributions in future fiscal years”

In one of the lamer political rationalizations for lying:

Christie spokesman Michael Drewniak provided The Star-Ledger with several examples where identical warnings were included in previous bond prospectuses dating back to at least 2009, calling it a standard disclosure.

“The language referred to is standard disclosure language that is identical to bond offerings disclosures going back to at least 2009 and the Corzine administration,” Drewniak said. “It is because we cannot tie the hands of, or commit future legislatures or governors’ actions that we are obligated to include such language.”

So no assurances could have been made in 2009 but, after the 2011 law passed, shouldn’t this language have changed?  How much of this prospectus is boilerplate?  Has anyone checked?  Is there still language in there from the Cahill administration about not needing an income tax?

What other tidbits are in the 16 pages of the prospectus devoted to Funding Pension Plans and what do they really mean?

As is discussed below, the actual amounts that the State contributes to the Pension plans each Fiscal Year are subject to annual appropriation by the State Legislature and can be and, over the last several years, have been less than the actuarially recommended contribution rates. (I-50).

Real World Translation: We can do whatever we want.

Calculations of the actuarial accrued liability reflect legislation in effect at the time calculations are made.  Legislation enacted after such calculation could significantly increase or decrease the actuarial accrued liability reflected in any such calculations. (I-54)

Real World Translation: Benefits can be cut…..and significantly.

The 2011 Pension and Health Benefit Reform Legislation contains a provision stating that members of the Pension Plans now have a contractual right to the annual required contribution made by the State and local participating employers and failure by the State and local employers to make annual required contributions is deemed an impairment of the contractual right of each member.  This language may limit the State’s ability to reduce or limit pension contributions in response to future budgetary constraints.

Real World Translation: Note the word ‘may’.  It’s New Jersey, we don’t heed no stinkin’ contracts.

Although the accumulation of assets in the Pension Plans does not jeopardize the payment of pension benefits in the short term, the long-term impact of continuation of a funding policy that allows the State to contribute less than the actuarially recommended contributions could impact, at some point, the Pension Plans’ ability to meet their obligations absent significant additional contributions by the State, increased investment returns or actions resulting in changes to liabilities of the Pension Plans.  Future increased contributions by the State in future Fiscal Years, depending on the magnitude, would likely create a significant burden on all aspects of the State’s finances.  No assurances can be given as to the level of the State’s pension contributions in future fiscal years. (I-62)

Real World Translation: No assurances can be given as to the level of the State’s pension contributions in future fiscal years.

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* Legal as defined by the State Legislature which if it passed a law raising the interest rate to 600% and using a plague component in the mortality table thus developing a contribution of $7 and then defined the ‘required contribution’ as one-seventh of this calculation they could put in $1 and still be law-abiding.

16 responses to this post.

  1. Posted by Tough Love on May 17, 2013 at 5:49 pm

    Quoting …”“No assurances can be given as to the level of the State’s pension contributions in future fiscal years””

    John, It doesn’t seem “unreasonable” to include such language. An “assurance” means that NO MATTER WHAT HAPPENS, the contributions WILL be made.

    What if the economy tanks and the ONLY way to meet such contributions were unreasonable service cuts or significant Tax increases?

    While I understand your point, I think you’re making a mountain out of a molehill. Potential investors will just waive it (that wording) off because OF COURSE, they can’t ASSURE such contributions.

    Reply

  2. Posted by muni-man on May 17, 2013 at 5:49 pm

    The language in the prospectus really is just standard-type boilerplate CYA stuff. In reality, the state can’t give pensions (including pension funding) contractual status without first amending the NJ constitution to that effect – something it will never do. The legislature flatly refused to do so at the 1947 constitutional convention when an attempt was made by the unions to include language that mimicked the NY state constitutional language to include ‘pensions are contracts and can never be impaired’ language. The state has never seriously reconsidered the issue since. NJ case law even cites this specific refusal in Spina (1964) which was also why the UNCOLA was so easily implemented – pensions ain’t contracts in NJ. Any law that gives ‘contractual assurances’ the state will fully fund pensions is hollow at best since the constitution does not authorize any such assurance and would be in conflict with it.

    Reply

  3. Posted by Anonymous on May 17, 2013 at 6:16 pm

    Hey I agree with TL for once. The payments were made when it was possible to make them in the past, why should corrupt politicians be forced to make the contributions now. I mean they need to keep stealing a certain amount of money or else it doesnt pay to be a politician.

    Reply

  4. Posted by Anonymous on May 17, 2013 at 6:52 pm

    The 2011 law reaffirmed that there is a statutory, contractual, “non-forfeitable right” to receive pension benefits (the original law was passed by Whitman in 1997). The new law now also includes another statutory, contractual right – this time an obligation on behalf of the State (enforceable by pension members) to fund the pension system. The law actually provides a contractual right to receive a pension benefit (without reductions) and requires the State to fund the pension system. These statutory rights are now protected by the State and federal contract clauses. The State Constitution does NOT have to be amended. The Spina case has been overruled by the State Legislature and the contract clauses of the State and federal constitutions.

    Reply

    • Posted by muni-man on May 17, 2013 at 7:21 pm

      You are 100% wrong, but keep believin’ in that fantasy of yours. Read Spina, the
      Appellate decision regarding pension funding, and the UNCOLA decision. You might learn something.

      Reply

    • Posted by Tough Love on May 17, 2013 at 7:45 pm

      Well, I hope you’re wrong … I’m OK with Taxpayer-funded Public Sector pensions EQUAL to what Private Sector Taxpayers typically get from their employers … expressed as a % of pay, and with a full actuarial adjustment for unreduced pensions at younger retirement ages, the inclusion of COLA increases should they be reinstated, and the more liberal definitions of Pensionable Compensation.

      Of course the Public Sector Unions & Workers would howl & scream if they were only entitled to EQUAL pensions, the value at retirement of their pension promises now routinely being 2-5 times greater than those of comparable Private Sector Taxpayers … and 80-90% paid for on the Taxpayers’ Dime.

      What’s wrong with this picture ? Is their insatiable greed not sufficiently apparent ?

      Reply

  5. Posted by Anonymous on May 18, 2013 at 10:31 pm

    Muni-man, I have read Spina. It simply says the State Legislature has the authority to determine state employee compensation. Put aside the language about the State Constitution. The case stands for the legal principle that the legislature can set the terms and conditions of public employment, including pension rights.

    The appellate division decision I assume you are referring to is NJEA v. State of New Jersey. That case did find there is no constitutional right to funding of the pension system, but it was decided before the 1011 pension reform law, which now provides for one (pursuant to Spina).

    Lastly, the “UNCOLA” decision you refer to is now on appeal. In order to learn something, you have to read. Please read each of the cases you claim to understand.

    Reply

    • Posted by Anonymous on May 19, 2013 at 1:43 pm

      muni-man : Owned!

      Reply

    • Posted by muni-man on May 20, 2013 at 9:57 am

      No excuses, I was definitely wrong and you’re right. My apologies for comments that were clearly of a Ready, Fire, Aim nature. I know I read 78-2011 entirely when it came out because I saved it in a special folder; I simply can’t explain why important contract language like that completely slipped off my radar though and for what’s obviously been quite a long while now, so I definitely have to eat crow on this. The state made a big concession with this language, no doubt about it. In order to find out the real extent of what the state actually gave away in this thing, I’ve gotta find out more definitive answers to a number of other questions from one of the law’s sponsors which might be difficult to get but I’ll try. Based on the contract stuff though I’m not too optimistic.

      Reply

    • Posted by briandin on May 22, 2013 at 4:50 pm

      Since when does passing a law create a constitutional right where such a right did not exist before? What the legislature creates, it can take away. That is exactly what the government spokesperson quoted above was trying to say.

      But hey, the public sector leaches and those like the actuaries who depend on them can argue about the sanctity of “contract rights” until they are blue in the face. Until NJ gets back the right to print its own money (which it gave up in 1787), there is no way these benefits will be sustained.

      The lack of COLA adjustments will take care of it all, just give Bernanke and Yellen time.

      Reply

      • Posted by Tough Love on May 22, 2013 at 5:15 pm

        Actually, I believe the Unions and politicians have colluded to protect Public Sector retirees from that eventuality as well. To protect themselves against inflation consistently greater than their COLA adjustments, or now, any inflation at all (with no COLAs), I believe the NJ Pension Plans include a provision that the purchasing power of their pensions in any year can never fall below 85% of the starting pension’s value.

        John, Are you aware of a provision as I just described ?

        Reply

  6. Posted by Anonymous on May 22, 2013 at 7:26 pm

    Briandin,
    The State Legislature can create statutory, contractual rights. They have done it in the past and they have done it with regard to pensions. Once that expressly contractual right is created, it come within the protection of the State and Federal Constitutions; specifically, the “contract clauses” of each constitution. If the legislature tried to take away the underlying contractual right by repealing or abolishing the original law, it would NOT affect those persons for whom the right has attached. If you read those sections of Chapter 78, Public Law 2011, the right to receive pension benefits was repealed for all new hires, not those who accrued the right before the law was passed. In addition, that same law now provides a contractual right to fund the various pension plans. That new right is also protected by the contract clauses. Again, the legislature could eventually repeal that new right, but it would only apply to new pension members.

    Reply

    • Posted by Tough Love on May 22, 2013 at 9:04 pm

      With sufficient guts to confront the establishment and the Unions, everything can be addressed. E.g., Fire/Outsource and hire replacement workers with DC Plans … just like what Private Sector Taxpayers get.

      Now where do we find some politicians with sufficient guts ?

      John, Not sure if NJ Transit workers are technically Public Sector employees, but here’s one of NJ’s Best and Brightest:

      http://autos.aol.com/article/transit-work-hires-drunk-homeless-man-to-direct-traffic/?icid=maing-grid7|maing8|dl9|sec1_lnk2%26pLid%3D317283

      Reply

    • Posted by briandin on May 25, 2013 at 12:05 pm

      So what you are saying is that the Constitution (state) will have to be modified. I agree. And believe it will, but first many will be forced out of their homes from runaway taxes (I just sold mine but it was by choice). Moving my business across the Delaware as of July 1.

      Reply

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