Why New Jersey Cities Aren’t Going Bankrupt

The view from the ivory tower is because of “strict fiscal oversight” in New Jersey.

No, that’s not it.

The official state line:

While more than 20 counties and municipalities and authorities in 10 states have filed bankruptcy since 2003 because of poor financial practices or unsustainable pension debt, New Jersey has not had a local government bankruptcy since the Great Depression.

“Camden in many ways is in worse shape than Detroit, but Camden isn’t in bankruptcy and isn’t going to go into bankruptcy,” said Marc Pfeiffer, assistant director of the Local Government Research Center at Rutgers University’s Bloustein School of Planning and Public Policy.

“While New Jersey has a few municipalities that are severely distressed, we are considered one of the better states in oversight and managing funds, and it’s a system that continues to work. The states where municipalities have gone bankrupt were those with a lack of oversight and limited engagement by the state government until it’s too late,” said Pfeiffer, who spent more than 20 years tracking New Jersey municipal finances before retiring last year as deputy director of the state Department of Community Affairs’ Division of Local Government Finance.

Camden, Paterson, Trenton, Harrison, and Asbury Park are all under supervision by the state’s Local Government Finance Board and part of a special transition aid program “designed to keep municipalities afloat,” Pfeiffer said, and both Harrison and Salem City are under close fiscal supervision because of problems with development bonds.

“A bankruptcy like Detroit just isn’t going to happen in New Jersey,” agreed Jon Moran, the New Jersey State League of Municipalities’ longtime legislative director. “Here in New Jersey, for a community to declare bankruptcy, you have to get approval from the Local Government Finance Board, and before it gets to that point, the Board and the Director of the Division of Local Government Services will already have taken steps to fix the problem.”

Those steps include allowing spendthrift governments to raise taxes to whatever it takes to keep fixing pipe organs ($166,885 in Union County).  A porous tax cap combined with innovative revenue enhancements (i.e. stealing from the Open Space trust fund in Union County) have allowed local governments to keep their fiscal fiefdoms intact while piling on obscene tax increases (8.31% in Union County).  If the Local Government Finance Board is really paying attention to these shenanigans then what are they doing about them?

It is true that if you provide governments the means to raise taxes to whatever it takes to pay their bloated bills then those governments should never have to go bankrupt.  But taxpayers?  Where are their bailouts?

16 responses to this post.

  1. Posted by Tough Love on July 22, 2013 at 6:49 pm

    John, Nice examples in your next-to-last paragraph, but you left out the biggie …

    Allowing a CONTINUATION of FUTURE Service Pensions accruals on the SAME grossly excessive basis (formulas AND provisions) as we have today. And the SAME holds true for retirees healthcare promises.

    I guess the Politicians want to CONTINUE digging the financial hole we are in even deeper.

    Reply

  2. Posted by Eric on July 23, 2013 at 12:18 am

    John:
    I love it. My property taxes only went up 19%. Yes, that is 19%. What a deal to live in this creepy, disgusting, scum ridden Garden State. This is money very well spent indeed. I heard that there is no inflation. I also heard that there is a 2% cap on my property taxes which seems like a smaller number than 19. What do I know? I only teach math. I heard that there is an economic recovery. I heard that only good things happen to good people. I heard that Detroit is just a fluke occurrence which will never be repeated anywhere in the US. Finally, I heard that Santa will bring me everything I ever wanted if I just wait until Christmas. I am more than half way there!
    Eric

    Reply

    • Posted by Tough Love on July 23, 2013 at 12:27 am

      So you teach math ? In a NJ “Public” school?

      If so, it’s YOUR (and police and all the other Public Sector worker) pensions and retiree healthcare promises that are the ROOT CAUSE of the problem.

      And for every $1 in incremental taxes YOU pay, YOU (Public Sector workers) get back $4-$6 in the incremental taxes paid by EVERYONE.

      Are you really looking for sympathy ?

      Reply

      • Posted by Anonymous on July 23, 2013 at 6:20 am

        My house appreciated only 2000.00 in 12 years yet my taxes have literally doubled in those 12 years. Is there a mathematical explanation for that?

        Reply

        • Posted by Tough Love on July 23, 2013 at 1:18 pm

          Yup ….
          (a) in 2001 we were ALREADY half way through a price run-up — which later reversed
          (b) perhaps you paid too much
          (c) lousy neighborhood or undesirable house ?

          Anyway, while high taxes can suppress house prices, the “driver” of high taxes in NJ (and most other places) is the grossly excessive pensions & benefits of Public Sector workers ……………. FAR in excess (literally multiples greater in value at retirement) of their Private Sector counterparts making the SAME pay, retiring with the SAME years of service, and retiring at the SAME age.

          It’s WAY past time to END these DB Pension Plans for the Future Service of all CURRENT Public Sector workers. They should be replaced with Social Security (for all Public Sector workers) and a 3-5% of pay 401k-style DC Plan “match”.

          That’s what Private Sector workers get …. and Public Sector workers should get EQUAL … but NOT more … on OUR Dime.

          Reply

          • Posted by Pat on July 23, 2013 at 5:21 pm

            TL, I agree that public DB plans should get what the private plans get, including:
            *No employee contribution. Most private plans paid everything (including the one my wife is on).
            *Pension insurance, should the company (or city) go bankrupt.
            *Required payments to the plan. Don’t pay, go to jail.

            In other words, all the ERISA requirements and protections of private plans.

            This may have caused a lot of public plans to fail (as happened with the privates), but this may have prevented all the debt and upcoming human carnage resulting from the gross mismanagement of the public plans.

          • Posted by Tough Love on July 23, 2013 at 6:58 pm

            Pat, You are correct when saying that Private Sector workers typically do not contribute to the cost of Traditional final-average-pay Defined Benefit pensions.

            But what you’re not saying is that virtually ALL PUBLIC Sector workers CURRENTLY get this type of pension, but in the Private Sector they are a ghost of decades ago, with very few (less than 5%) Private Sector workers still accruing pensions credits under such Plans. And just like they have been ended in Corporate America … because they as simply too expensive and too risky …. they should be ended in the Public Sector.

            Now addressing your other points:

            (1)You seem to think the Public Sector contributions towards their pensions are a big deal, which is not surprising considering how your Unions play it up and moan at the slightest hint of increased employee contributions. Well here’s a fact … if you took all of the typical Public Sector worker’s pensions contributions, and accumulated them WITH INVESTMENT EARNINGS to the date of retirement, RARELY would the accumulated sum be sufficient to buy more than 10-20% of the very rich promised pensions. The Taxpayers’ contributions and the investment earnings thereon (earnings that in the absence of the high funding needs of these excessive pension promises, would have stayed in the Taxpayers’ pockets, perhaps to fund their much smaller pensions) are responsible for the 80-90% balance.

            (2) Yes, (most) Private Sector Plans pay insurance premiums to the PBGC which insures (with certain restrictions) pensions up to a maximum annual payout. That maximum is about $57K in 2013 for someone age 65 in the year of Plan termination, and decreases rapidly for younger ages. While there is certainly an indirect link, one could argue that the premiums that corporations pay the PBGC for this coverage would have been spent in increased compensation had they not had to pay for this insurance, or alternatively … PUBLIC Sector cash pay is higher by the premium they do NOT have to pay for such insurance. Bottom line … there is no free lunch. There is a COST for that insurance that arguably is reflected in lower Private Sector paychecks.

            (3) re your …”Required payments to the plan. Don’t pay, go to jail” I like that one, but it should only FOLLOW this one ….. “Promise more than is necessary or affordable, one measure of which is by comparison to what Private Sector workers typically get, and go to jail” Meaning, Funding FOLLOWS Generosity, and we have a BIG problem “funding” Public Sector Plans BECAUSE they are (by any and all metrics) simply FAR FAR too generous.

            And as to the mismanagement of Public Sector Plans, it is universally traceable to the VERY greedy Public Sector Unions/workers who buy the favorable vote (on pension & benefits) from our self-interested, vote-selling, contribution-soliciting, taxpayer-betraying elected officials.

            And, when (not if) the money runs out, Court decisions won’t matter.

            Greed HAS consequences.

          • Posted by Pat on July 23, 2013 at 11:27 pm

            Quite the rant TL. I take it you don’t agree then that ERISA (or PERISA, as John says) would be as beneficial to public as private plans.

            BTW, I think that all employees, private and especially public, should contribute to the plans. There should not no free lunches.

          • Posted by Tough Love on July 23, 2013 at 11:57 pm

            Pat, Rant …really?

            Actually, “PERISA” would be FAR less beneficial to Public Sector workers, primarily because so many “retire” at FAR younger ages than Private sector workers, and that puts them in the cross-hairs of PERISA annual Caps as low as $20K annually. Yup, the 50 year old police officer with (a not unusual) $100K pension might see it drop to $20K.

            I agree wholeheartedly that there should be no free lunch, and as to your comment …”BTW, I think that all employees, private and especially public, should contribute to the plans “……… I take that a step further and strongly support EQUAL Public and Private Sector “Total Compensation” (cash pay plus pensions plus benefits) in comparable jobs (or jobs with similar risks, education, and skill sets, if not directly comparable). And with VERY Close “cash pay” in the 2 sectors (per the US Gov’t BLS), there is ZERO justification for ANY greater Public Sector pensions let alone the current ones that are MULTIPLES greater in value at retirement.

            Got a problem with EQUAL ???

  3. Posted by Eric on July 23, 2013 at 9:44 am

    Tough Love:

    We have been through this before. I hope you do not have a memory problem. Go back and look at previous comments that I have made with you. I teach college math at a private institution, not government. Sometimes, I teach out of this country.
    I am not trying to be difficult, but please check.

    Thanks,

    Eric

    Reply

    • Posted by Tough Love on July 23, 2013 at 1:22 pm

      Didn’t know you were “that” Eric.

      Reply

      • Posted by Anonymous on July 23, 2013 at 3:00 pm

        Correct me if off base but it seems there may be a real possibility of towns and municipalities in NJ going bankrupt as the state pushes mot and more costs onto the towns and cuts funding. Taxes are already sky high how much more will taxpayers put up with?

        Reply

        • Posted by Anonymous on July 23, 2013 at 3:23 pm

          Meant more and more obligations onto the towns

          Reply

        • Posted by Tough Love on July 23, 2013 at 3:28 pm

          Since Public employee Pension and healthcare costs are outside the 2% tax increase cap, the real questions is .. will town property taxes be the balancing source to pay for these absurdly generous costs … now matter how costly they prove to be.

          In my opinion, it doesn’t bode well for the Taxpayers, because our elected officials, who will make these decisions, are in the Union’s pocket … having been bought off with campaign contributions and election support.

          Reply

  4. Posted by eatingdogfood on July 23, 2013 at 4:24 pm

    If The Democrats Didn’t Give ” Sweetheart Deals ” To Your Public Service Union.
    Goon Employees To Get Reelected; You Would Have Plenty Of Money and The.
    Taxpayer would have Some Spare Change in His Pockets! Democratic Hustler
    Politicians + Corrupt Union Goons = BANKRUPTCY BABY! Time To Bring.
    RICO Conspiracy Charges Against The Hustler Corrupt Democrats and the.
    Criminal Unions!

    Reply

  5. Posted by doctor teeth on June 2, 2014 at 3:02 am

    Teachers don’t make six figures until their 30th year of work. Cops make six figures by their 9th. So if a cop joins the force at 23. Retires with %80 of $125k and lives to be 99 years old. How many years will the state be paying 100k for someone not working … 55 years….. a cop can get paid Google money for 55 years with out lifting a finger. But don’t worry about jersey. “That’s just the way it is ” so keep taking the attitude that the system is f ed and pay your turnpike tolls that no other state pays. if you don’t start electing people and stop letting the political bosses appoint them its only going to get worse…..

    Reply

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