Rationalizing What’s Convenient

A judge ruled this afternoon that New Jersey does not have to make a contractually obligated pension payment on Monday.

Nothing new here.  Ten years ago the State Supreme Court ruled that New Jersey could not borrow to balance a budget……in future years.  Though illegal it was OK for the year in question since that would mean less work for everybody.

Same concept with the 6/30/14 pension payment except that the rationalizations for this ineluctable outcome were particularly laughable and wrongheaded but c’est la vie – in New Jersey anyway.


[Judge] Jacobson said she was convinced by the state’s case that the shortfall in the current fiscal year presented a true fiscal emergency that allowed Christie to take all available funds to plug the gap. “I don’t think it was something that he did lightly,” Jacobson said. “He was put between a rock a hard place.”

And how exactly did Christie get into that tight spot?  Was it not due to the fiscal myopia of people in his administration who continue to pull the strings?

“This was one of the hard choices the people of New Jersey expect me to make, and I am pleased the court recognized the necessity and urgency of this decision so that we can provide key funding for our schools, our colleges, our hospitals and other essential services,” Christie said in a statement released by his office.

The hard choice the people of New Jersey might prefer is making that 900 million dollar pension payment by reducing kickbacks in jobs and contracts to campaign donors and supporters.

Though Christie has compared New Jersey to Detroit, which had a large outstanding pension obligation when it filed for bankruptcy, the court papers his attorneys filed in response to the unions paint a different picture of the pension systems saying they are solvent enough to pay employees for the next 30 years. And Assistant Attorney General Jean Reilly underscored that exact point in court on Wednesday, a representation Jacobson said she relied on in issuing her ruling.  Since no employee is right now in danger of not receiving their benefits she said “the balancing of the equities ultimately does not favor the plaintiffs,” she said.

I guess nobody thought to bring up the fact that approximately 200,000 people have already lost pension payments (as of today).

She also raised concerns about retired employees not receiving pension checks, something Christie told her not to worry about. “We can pay our checks for a very long time, but not forever,” Christie said.

Do the math starting from today:

  • $70 billion: assets now after adjusting for those inflated values on alternatives
  • – $30 billion: Value of employee contributions not paid out in benefits yet
  • +$10 billion: earnings (assuming no market crash) over the next 5 years on a dwindling asset base
  • +$10 billion: State and local contributions over the next 5 years
  • – $60 billion: pension payouts over the next 5 years
  • = $0 assets in 2019 – for some people a “very long time” from now

 

18 responses to this post.

  1. Posted by dentss s on June 25, 2014 at 9:26 pm

    you couldn’t raise taxes to pay for pension payments anyway the state constitution requires that “the entire net receipts” of any income tax be “placed in a perpetual fund designated the Property Tax Relief Fund and be annually appropriated, pursuant to formulas established from time to time by the Legislature..(.PMulshine column )

    Reply

  2. Posted by Tough Love on June 25, 2014 at 9:51 pm

    Quoting …”The hard choice the people of New Jersey might prefer is making that 900 million dollar pension payment by reducing kickbacks in jobs and contracts to campaign donors and supporters.”

    OR (and equally as deserving) …. by hard freezing the current grossly excessive Public Sector DB pension Plans for the future service of all CURRENT workers and replacing these DB Plans with a modest DC Plan with a %-of-pay Taxpayer “match” (of roughly 3%) which is typically granted Private Sector workers by their employers.

    What makes Public Sector workers so “special” that (while making no less in cash pay) their are supposedly deserving of pensions and benefits that are MULTIPLES greater in value at retirement (TYPICALLY 3x-4x greater) than those typically granted Private Sector employees (by their employers) … and with 80-90% of the total cost, on the Taxpayers’ dime ?

    Reply

  3. Posted by Eric on June 25, 2014 at 10:03 pm

    John:
    You are correct. The employees who retired before the law was changed were never party to cc’s “agreement” reached with the unions in 2011. It will be interesting what the panel releases tomorrow after a 5 month “search” for the law after oral argument. Perhaps the 3 blind mice were seeking guidance or direction from a “higher” authority.
    NJ will continue to lead the nation in unabashed corruption.
    Eric

    Reply

  4. Posted by LGreene on June 25, 2014 at 11:26 pm

    I am confused. How do you deduct the 30B in pension contributions? Also to only earn 10B in next 5 years seems low. If 70B only earns 7% then it would earn 4.9B in first year. I would like to see more detail on your assumptions. But I get your point anyway, that without the contributions ( and toughlove would say reform), there is only enough to pay for benefits for 5-15 years . But why is this so different from Christies assessment?How can he claim that there is enough to pay all benefits for 30 years?

    Reply

    • Posted by Tough Love on June 25, 2014 at 11:34 pm

      Lgreen, a commentator in a prior post said …

      “Under the section “The State’s Decision to not Make the Entirety of Its 3/7 Payment Does not Threaten the Integrity of the Pension System” it states ‘Based on actuarial assumptions and assuming that the State returns to a regular payment schedule, “the pension systems are projected to continue providing benefits to retirees for at least the next thirty years.”””

      So it appears that Christie’s claim …” that there is enough to pay all benefits for 30 years”, is CONTINGENT upon …”Based on actuarial assumptions and assuming that the State returns to a regular payment schedule” , meaning that all State contributions will be made on schedule AND that Plan assets will earn 7.9% every year.

      If you believe that there is even a snowball’s chance of EITHER happening, I’ve got a bridge I’d like to sell you.

      Reply

    • $30B is a guess. It could be more. I start with $10B for Teachers which is the valuation and the total of their employee contributions with interest. Projecting I estimate another $15B from PERS, the largest plan, and PFRS, the highest benefit and contribution plan, then I add in $5B for those current retired who have not gotten all their contributions back. The return of employee contributions has got to be a given in this new order.

      $10B for earnings is because (a) the payouts are far more than what is being deposited in so there is the need for liquidity and (b) the exceptional earnings growth of the last 4 years, fueled by a shift to name-your-own value alternatives can’t sustain and we will get the ultimate asset valuation when those assets need to be sold off to pay people and the inflated values assigned to certain investments get a market value accounting.

      Christie can say anything he wants. No one is inclined, or in some cases capable of, challenging what he says. On top of that whatever Christie asks of the actuaries, they comply. Even after Detroit where one set of actuaries saw a $3.5 billion liability where other actuaries saw a 98% funded plan nobody questions the ‘experts’.

      Reply

  5. Posted by Mad on June 25, 2014 at 11:52 pm

    State worker. .we are getting the shaft again.
    And they are trying to get rid of us do they won’t pay our pension.

    Reply

  6. Posted by Javagold on June 25, 2014 at 11:55 pm

    You people need to start reading ZeroHedge. There is no way out. This ponzi is going to collapse. Period.

    Reply

    • Posted by dentss s on June 26, 2014 at 9:47 am

      ZH is a great blog …I remember a piece on Detroit ,somebody mentioned Detroit could issue IOU’s for future payments the only to get cash today would be to sell those IOU’S in the open market to who ever wants to but them ,something like junk bonds 25 cents on the dollar .Or will will have hyperinflation where the pension is inflated away …that $3,000 a month you get will buy a loaf of bread ……

      Reply

  7. Posted by Anonymous on June 26, 2014 at 10:33 am

    The judge cited the NJ Disaster Act to allow CC to reduce the 2014 pension payment. Really! The Act covers “natural disasters” not manmade disasters attributed to fiscal delusions. The Act states manmade disaster are second degree criminal offenses. Simply, if the budget is underprivileged in 2013, you will not have enough revenue to fund expenditures and at some point, five days before the end of the fiscal year, a fiscal emergency/disaster is created by CC and company. The sky is falling your honor, what can we do, cut the pension payment to avoid a complete fiscal meltdown, turn a manmade crisis to an unnatural disaster apply a civil defense/emergency management state law, problem addressed. Really!

    Reply

    • Posted by Tough Love on June 26, 2014 at 10:57 am

      There’s no money to pay for it THIS year, or the next, or the next …………. or EVER.

      Face it, the Public Sector pension & benefit pig-fest (with it’s outrageous generosity and hence cost, unjustly foisted upon the Taxpayers) is rapidly and rightfully coming to an end.

      Reply

      • Posted by Anonymous on June 26, 2014 at 12:16 pm

        But, there is still a surplus, other states are not sweating employee benefits, public employees are necessary.

        Reply

        • Posted by Tough Love on June 26, 2014 at 1:10 pm

          With Public Sector “cash pay” (in total for all comparable workers…. recognizing that are are some lower and some higher) near EQUAL to that of comparable Private Sector workers, AND with EQUAL Public/Private Sector “Total Compensation” (cash pay + pensions + benefits) the appropriate goal, there is no justification for ANY greater Public Sector pensions, now ROUTINELY 3x-4x greater in value at retirement.

          What I advocate for is EQUAL “Total Compensation” which with cash pay being equal (on average), so MUST be pension & benefits, and if accomplishing that requires a 50-75% reduction in the future-service pension accrual rate for all CURRENT workers (or offsetting adjustments in the generous Plan “provisions” such as very young full retirement ages) …. SO BE IT !
          —————————————————————————–

          P.S. while Detroit had a much greater “cash flow” problem than NJ (that being the proximate cause of it’s bankruptcy filing), NJ’s pensions are in MUCH MUCH worse shape than Detroit’s pension plans, and all but a VERY few in the entire nation.

          Reply

          • Posted by Anonymous on June 27, 2014 at 11:04 am

            There are workable solutions including developing a hybrid pension system for certain groups of employees.

          • Posted by Tough Love on June 27, 2014 at 11:54 am

            Anon,

            Well as long as “certain” includes ALL CURRENT workers, a discussion may be worthwhile. If you are thinking only “new” workers or only those not yet “vested” (with less than 5 years of service), don’t waste your time … as any savings would be woefully insufficient.

  8. Posted by Anonymous on June 26, 2014 at 10:34 am

    “underfunded”

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: