New Jersey: Worse than Mercatus thinks

The Mercatus Center ranks New Jersey dead last among the 50 states in fiscal solvency and provides a handy chart:

Of course numbers can be made to lie but after condensing the report for easier ingestion for myself (and you) it looks like New Jersey was overrated.

WORKING PAPER: State Fiscal Condition Ranking the 50 States by Sarah Arnett (condensed excerpts):

Fiscal condition describes a government’s ability to meet its financial and service obligations.

ICMA model defines four types of solvency (NJ”s rank):

  1. Cash: liquidity and ability to pay bills on time (36)
  2. Budget: ability to meet current year spending obligations without causing a deficit (50)
  3. Long-run: ability to pay for all costs including those that may occur years into the future (50)
  4. Service-level: ability to provide and pay for the level and quality of services required to meet a community’s general health and welfare needs (39)

Data comes from 2012 CAFRs for each state.  Financial Indicators (with the solvency type from above that they are part of):

  • Cash ratio (1): cash / current liabilities
  • Quick ratio (1) : (cash + receivables) / current liabilities
  • Current ratio (1): current assets / current liabilities
  • Operating ratio (2): total revenues / total expenses
  • Surplus (deficit) per capita (2): change in net assets / population
  • Net asset ratio (3): net assets / total assets
  • Long-term liability ratio (3): long-term liabilities / total assets
  • Long-term liability per capita (3): long-term liabilities / population
  • Tax per capita (4): total taxes / population
  • Revenue per capita (4): total revenues / population
  • Expenses per capita (4): total expenses / population

Weights applied to each solvency measure: .35 x (1) + .35 x (2) + .2 x (3) + .1 x (4)
For New Jersey:
.35 x -1.72 + .35 x -2.84 + .2 X -5.12 + .1 x -1.99 = -2.81

“New Jersey was ranked at the bottom in budget solvency, largely due to a decrease in net assets of $6.4 billion.  According to the state CAFR, despite improvements in tax revenues in fiscal year 2012, New Jersey has still not returned to the revenue levels it achieved before the recession.” (page 21)

“At the bottom of the [long-term liabilities] rankings are New Jersey and Illinois.  New Jersey faces long-run solvency problems due in part to nearly 15 years of underfunding its state and local pensions.  It has an estimated unfunded pension liability of around $25.6 billion as well as $59.3 billion in unfunded liabilities for the health benefits of retired teachers, police, firefighters, and other government workers.” (page 21)

“Although the ranking represents a snapshot in time, the states at the bottom are there due to years of poor financial management decisions, bad economic conditions, or a combination of both.  New Jersey and Illinois face similar problems of tax revenues that have not kept up with expenditures, use of budget practices that only appeared to balance their annual budgets, and significant debt levels as a result of decades of using bonds without being able to pay for them.” (page 24)

Why New Jersey is overrated:

  1. $25.6 billion in pension liabilities!!!?? The real number is at least six times as much and rising and the .2 factor that Mercatus applies to this long-term  solvency type understates its importance.
  2. A major source of pain here is property taxes which is completely excluded from this study.  There New Jersey also ranks last but by a far greater margin.
  3. Because of those high property taxes we have a cap on local budgets which is full of holes and has not contained the rise in taxes but what it has done is encourage massive amounts of debt at the local level (also excluded from the study).  For example, if you want to maintain those make-work jobs and contracts for your ‘supporters’ then pretend there is a need for a new courthouse or a restaurant/clubhouse/banquet center so you can bond for that $40 million and siphon off a few million to support your political infrastructure.

And why New Jersey will not improve on their ranking any time soon:

27 responses to this post.

  1. […] * For a layman’s summary of the Mercatus study see here. […]


  2. Posted by Tough Love on January 18, 2014 at 7:44 pm

    Quoting…” New Jersey faces long-run solvency problems due in part to nearly 15 years of underfunding its state and local pensions. ”

    While certainly true, We DO need to remember (as we address options going forward) that those grossly excessive (and hence VERY COSTLY), unjust (to Taxpayers), and CLEARLY unnecessary (to attract and retain a qualified workforce) pension “promises” were excessive from the get-go (by any reasonable comparative metric) and even BEFORE the retroactive increases that have been granted.

    My point in repeatedly bringing this up for Taxpayers to consider whether they should be addressing this financial shortfall via tax increases and/or further service reductions, or whether they rightfully should demand a reduction in these promised pensions.


  3. Posted by marbs on January 18, 2014 at 8:34 pm

    Who reaped the benefits of the 15 years of underfunding a pension system that was fully funded? Could it possibly have been the taxpayers in the form of property tax rebates and tax cuts or at least no increases? Well the bill is due and has to be paid, the workers always paid their share now it is time for the state, counties and municipalities to pay theirs.


    • Posted by Tough Love on January 18, 2014 at 9:43 pm

      Sorry marbs, taxpayers should not contribute any more towards the funding of Public Sector Plans than what they typically get from their employers … . which is typically no more than a 2-5% of pay company “match” into a 401K Plan. To fully fund (over the employees working career) the TYPICAL Public Sector pension requires a level annual total employer/employee contribution of 25-40% of pay for non-safety workers and often 40-60% of pay for safety workers.

      Did you think that very RICH formulas, very young full (unreduced) retirement ages, very liberal definitions of “pensionable compensation” (often allowing the abusive “spiking” of final pay, and hence pensions) and COLA-increased pensions (now suspended in NJ) come without great cost?

      And as to you paying your “share”. Well sure you do, but if you accumulated ALL of YOUR contributions INCLUDING the investment earnings thereon to the date of your retirement, RARELY would the accumulated sum be sufficient to buy more than 10-20% of your VERY generous promised pension.

      The TAXPAYERS are supposedly on the hook to pay the 80-90% balance. And I say “supposedly”, because they’re nuts if they agree to pay that… and not renege on the absurd “promises” (gained only via your Union’s bribing our elected officials with campaign contributions and election support).

      The financial “mugging” of the Taxpayers at the hands of the insatiably greedy Public Sector Unions/workers must end.


      • Posted by bpaterson on January 21, 2014 at 3:45 pm

        There is only one way to get NJ out of being #50. The US needs more states.

        But seriously JB1-you note that the #s are underrated, don’t you think all the other states are doing the same shell game with their systems so everything is relative.

        Another item relative to marbs statement above as to who reaped the benefits. Those who reaped the benefits are not the ones paying for them. In other words not us who you try to demonize. Go talk to the abbot districts for one. The rest of us certainly use streets, police and schools, yet why are we the highest taxed state versus all the other states who provide the same services. And marbs expects the taxes to go up even further? Common sense just says something else is the cruxt of the problem of this forum topic, (along with everything else in NJ govts of all levels) .


      • Posted by Anonymous on January 21, 2014 at 7:16 pm

        Again, your analysis is flawed because it assumes a current level of interest rates. As I am sure you know, when you purchase an annunity, you need to put in less cash when interest rates are high, and they can’t get any lower.

        You cannot negate the fact that the property tax rebates were created at the exact same time as pension payments were forgone. The state cannot shed it’s obligations as it can’t declare bankruptcy. The best discussion would be one in which increased contributions from both sides are made.


        • Posted by Tough Love on January 21, 2014 at 7:49 pm

          One thing is certain, It’s going to get real ugly as the huge and accelerating cost of these grossly excessive pension/benefit promises becomes more apparent.

          In see 4 options (or combination thereof)….
          (a) increased employee contributions,
          (b) increased Taxes,
          (c) further service reductions,
          (d) reductions in the “promised” pensions & benefits.

          While a combination of the above is likely, I believe (d) will be part of it. Whether(d) will include only reductions for the FUTURE Service accruals of NEW and CURRENT workers or will also include reductions in PAST service accruals of those still working and/or retired, depends on how bad the situation becomes …… and how loud Private Sector taxpayers scream for some “fairness”.


          • Posted by bpaterson on January 22, 2014 at 6:02 pm

            heres a fair compromise since anon does recognize the give and take in the situation-the usual compromise between parties is split the diff 50-50. If the obligation is say $25 billion, the taxpayers then pick up $12.5 billion and the other $12.5 billion is picked up by the public sector workers. The public sector workers since they are also taxpayers for this example and can’t be held to both sides of the agreement, would certainly be allowed to write off 100% the first $12.5 billion since they foot the other 12.5.

            its a win-win or in this case really more of a lose-lose but that result is considered the same thing in negotiating. either way the problem is resolved.

  4. Posted by marbs on January 18, 2014 at 9:59 pm

    You must really hate public employees… ignored the fact that the pension was fully funded until it was raided by the State for the benefit of taxpayers. Answer me this for State and local employees that are also covered by Social Security did the state and local governments give themselves a holiday from paying their share..LOL I think not but when they control a pension fund they just couldn’t keep their hands off the billions of dollars it had accumulated it was just too tempting. All the state had to do was keep matching what the workers put in. The investments would have kept the fund solvent, yes it may have dipped with the recession but would have rebounded by now IF the contributions were made. Again the state and local governments need to pay
    up. BTW the pension fund I am in (PFRS Local)is the most solvent and has surpassed the threshold that my COLA should be restored, but I am not holding my breath.


    • I don’t mean to dampen this burgeoning discussion but there a few points to be clear about:

      1) The New Jersey plans were never fully funded. In 2000 they might have been 80% funded (maybe) but dodgy assumptions have always been used to understate contributions for the benefit of various stakeholders.

      2) There may be union propaganda out there that the PFRS plan is funded enough to restore COLAs (the PBA even hired their own actuary presumably to show as much) but it’s a silly gambit. COLA s are gone forever in part because the state gets to define the funded percentage for its restoration.

      3) Even if the state put in what they were told the plans would be severely underfunded (50% maybe with earnings and using GASB rules) but with the $20 billion or so they have shortchanged the funds over the years it’s down to about 30%. Either way it’s a zombie plan even if the sponsor (NJ) were a thriving enterprise, which NJ hardly is.


    • Posted by Tough Love on January 18, 2014 at 10:25 pm

      Marbs, It’s just as easy for me to say that YOU must really hate Private Sector Taxpayers. With VERY few exceptions Public Sector workers earn no less in CASH CASH than their Private Sector counterparts. That being the case, and EQUAL Public/Private Sector “Total Compensation” (cash pay plus pensions plus benefits) as a fair and reasonable goal in comparable jobs, there is ZERO justification for taxpayers to contribute MORE towards YOUR pensions than what we get from our employers ………

      Or, is it that you are outwardly stating that Public Sectors workers are “special” and deserving of a FAR FAR FAR “better deal” than the Taxpayers that pay their way… is the case today.


      • Posted by Anonymous on January 21, 2014 at 7:20 pm

        You are incorrect. You are citing research about “average” salaries. If you look at college degree salaries, they are underpaid. That research is skewed because non-college educated individuals are paid a living wage.


        • Posted by Tough Love on January 21, 2014 at 8:00 pm

          No. My comment was on an apples-to-apples basis. What does seem to be apparent though is that getting a higher degree while working in a gov’t position always seems to be followed by a promotion/riase.

          It doesn’t work that way in the Private Sector. While of course there is a positive corrolation between education and salary, it’s not the new degree that gets you the promotion/raise, It’s proven competance accompanoed by increased responsibilities.


    • Marbs,




      • Posted by Tough Love on January 20, 2014 at 2:17 pm

        Marbs, you seems be be missing a salient point, Until VERY recently, Public Sector Unions (everywhere) never really cared much about or certainly pushed for full “funding” of their very generous promises because:

        (a) they felt well protected by the State Constitutions, Contract laws, Statues, and case law that somehow, someway, the Taxpayers would have to pay their pensions in full and on time no matter what, and

        (b) if FULL contributions (under a valuation using appropriate assumptions) were made, the annual contributions from the State(i.e., the Taxpayers) would be multiples greater than under current practices with the following consequences:
        …… (1) either Taxes would have to be materially increased and/or services lowered, pissing off the Taxpayers in a way that would likely would have focused on the true enormous cost of these pension/benefit promises, and demanding that they be reduced, and
        ……(2) there would be far less money (if any at all) for any workers raises, and likely material staff reductions … along with less Union dues.

        Essentially,the Public Sector Unions took a calculated risk that underfund but very generous pensions is better (for THEM) than reasonable, but fully funded pensions.

        In some cases, that choice will certainly turnout to be a very bad one for the employees. Only time will tell how bad it will become.

        But GREED, does have consequences.


  5. Posted by marbs on January 19, 2014 at 11:23 am

    Mr Bury: With all due respect you are doing exactly what Christie does you are lumping all the plans together, I am concerned only with PFRS and according to the annual state reports funding was as follows.2000-104.8%. 2001 100.2%. 2002 95.8% then downhill from there. So in my mind my original statement was correct.Also in 2002 and 2003 no contribution was made by the state and locals and the fund sank to 88% funded. PFRS Local is currently funded at 77.8%. My main point is not to argue but to point out that the state and locals eliminated or reduced their contributions and that caused a good part of the problem. Yes the recession played a role but stocks have rebounded.

    40 years ago I took a job and was promised a certain pension and benefits in return. I was told what to contribute and given no choice. I am not eligible nor could I have paid into social security and we had no 401k option either. Had I known that the pension promise of a cola (Not full but 60% of the CPI -W) would not be available then or at some future point I would have planned for that. I know my cola is gone the law is written to abolish it no matter what. NYPD members and PASP members receive a fixed payment for life unless a cola is granted by the legislature so they could plan by having their own 401K (or whatever it would be called) or have a part time job to contribute to social security. Many of us relied on promises made at hire. Thee promises are still being made and feature prominently in recruiting

    My pension is not extravagant my salary was modest not like the 100K plus that is the norm today. Maybe colas should have been adjusted on a sliding scale which would have been more fair than a complete elimination and would have still saved money but lessen the impact on retirees..

    I made my financial plans based on promises made by the state I moved out of NJ so as not to pay income tax, my property taxes are 10% of what they would be if I stayed in NJ
    sales tax is lower and the climate (virtually no heating bills) is ideal. Car insurance is cheaper and so on.

    It also seems the pension reform bill does not apply to the state either as Christie has just about said he does not want to put in the contribution required by this law so this will lower the funding even more.

    Does the system need to be looked at for change absolutely but employees should know this early in their careers so they can plan accordingly not a year or two before retirement or post retirement.

    This will be my last post on this thread as TL is set in their opinion and it will not change, and I have better things to do than argue,it is the same on other blogs they write to so their mind is closed and their opinion is set. I respect that fact and the fact that we disagree..

    I do have a question for Mr Bury maybe you know many years ago their was a single state employee who was in charge of investments for the pension plans who was very competent then he retired he was replaced by paid consultants who have done a less the stellar job, do you recall his name?


    • You bring up two good points that have been a leitmotif of this blog.

      1) On which you are wrong. Public pension funding has never been about getting it right but doing what you are told even 40 years ago (, The NJ plans were never fully funded when valued on an unbiased basis and this blog is full of examples of the games played through the years.

      2) When you invest there’s usually a disclaimer that returns are not guaranteed and past performance is no guarantee of future returns and warning of loss of principal. You don’t see those warnings for public pensions but they should be there for many plans. There is no guarantee and the need to cut pensions now is a direct result of too many people believing those phony numbers and not looking to fix the situation before it got this bad.

      As for investment managers in NJ the earliest I go back to is Orin Kramer.


    • Posted by Tough Love on January 19, 2014 at 12:31 pm

      While I understand why you want what was “promised”, you ignore that the world has changed and that similar “promises” made to Private Sector workers (that pay for all but a very small portion of Public Sector pensions and benefits) are LONG gone, and that the concessions and very minor givebacks from Public Sector workers don’t hold a candle to the reductions and take-aways forced upon Private Sector workers.

      It’s not a”race to the bottom”. It’s a matter of basic fairness.

      And speaking of “fairness”, you (as all others who oppose MATERIAL pension reform) focus only on the lack of full funding of your “promised” pensions. ignoring the fact that funding a VERY generous pension is VERY costly, and that the ROOT CAUSE of the funding difficulty is that the promises made to ALL Public Sector workers are excessive (by any reasonable comparative metric) and ALWAYS multiples greater in value at retirement than the pensions granted Private Sector workers retiring at the SAME age, with the SAME pay, and the SAME years of Service.

      Why are you “entitled” to a better (MULTIPLES GREATER today) deal than a COMPARABLE Private Sector worker……on the Taxpayers’ dime ?

      There has truly been a decades long financial “mugging” of Private Sector taxpayers by the very greedy Public Sector Unions/workers and our self-serving, vote-selling, contribution-soliciting, taxpayer-betraying elected officials, That needs to end, pronto.

      And yes,it would take quite a bit to sway my opinion ……because I fully understand the math behind this disaster nipping at our heels.


      • Posted by Anonymous on January 21, 2014 at 7:26 pm

        Of course when you mean compensation as salary and pension. What about company match 401k, how about company car and insurance, how about bonus, how about flex time, expense accounts, home offices, 100% company paid health and life insurance, corporate trips/junkets, free meals/coffee, and yes about 20% of companies still have pension plans. And guess what, if the company doesn’t pay the pensions, they are guaranteed by TAXPAYERS including all the state workers who get none of the other benefits listed above.


        • Posted by Tough Love on January 21, 2014 at 8:22 pm

          I’m stunned at how successful your Unions have been in convincing (i.e.,”bull-shitting”) you that Private Sector workers (excepting those in the “C-Suite”) get better and more perks and benefits than Public Sector workers.

          Do you REALLY believe that ???

          And for what it’s worth, the PBGC insures Private Sector pensions …. up to a modest annual limit which is currently $59,319 at age 65, $38,557 at age 60, and $26,693 at age 55.

          Not quite the big protection you seem to believe. And of course it could be argued that the premiums paid by Corporations for this “insurance” is reflected in lower pay to their employees.


          • Posted by Anonymous on January 22, 2014 at 1:40 pm

            Having working in the private sector and public sector, I am familiar that they both exist. You may not get all of the perks, but state employees get none of them. I am particularly unhappy that stock options are taxed at a lower rate than regular income. The point about PBGC is that there exists a taxpayer funded safety net for corporate pensions. Shouldn’t there be the same for public sector? I am not a big union guy, but when I read that the walton family has more wealth than the bottom 40% of Americans combined, I think there might be a problem.

          • Posted by Tough Love on January 22, 2014 at 2:30 pm

            Anon, While the PBGC is currently under-capitalized, it has hasn’t cost taxpayers anything (at least not yet). The PBGC changes premiums to the sponsors of DB pension plans.

            Stock options? That’s for executives, not the masses.

  6. Posted by Javagold on January 19, 2014 at 4:50 pm

    Global collapse….Federal Collapse…..State Collapse….Local Collapse

    Zero Hedge……Nowhere to Hide….


  7. Posted by Javagold on January 19, 2014 at 4:56 pm

    To start, the state and locals, should take away ALL Health benefits and throw the public takers on Obamacare…


  8. Posted by Anonymous on January 20, 2014 at 11:25 am

    Marbs, yes you worked, yes you contributed a small amount, yes you think that you are entitled due to promises made…… miss the point that what you were promised in pensions and benefits was so in realistically generous that it could never be funded in the first place. We pay the highest taxes in the country and you still think we should pay more….again very unrealistic. The chickens are coming home to roost and as much as you may not like it changes are coming


    • Posted by Tough Love on January 20, 2014 at 2:33 pm

      Here’s a suggestion (that will certainly piss-off Marbs) ….

      Since (from his above comment) he quickly left NJ (post-retirement) to escape the very high taxes necessary to even attempt to keep up with the morass that such generous promises have caused …… NJ’s Taxpayers should look to pension/benefit reform options that make those who have moved out of State take (BY FAR) the biggest hits.

      A quick and perhaps easy first suggestion …. end all Public Sector retiree healthcare subsidies for all non-NJ residents.


      • Posted by Anonymous on January 20, 2014 at 4:08 pm

        End the retirement healthcare for all of them and just insure the employee. If they want upgrades for family members they can pay for it themselves. End the lifetime health benefits another huge and over promised “benefit” and tax the pensions of out of staters just the same as those who retire in NJ


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