New Jersey Does Not Have The Power

Alicia Munnell was surprised by the New Jersey Supreme Court decision in the pension payment case finishing up her article with:

So here are my questions. Why is it OK for the state to make unconstitutional commitments? And if the state does not have to live up to its side of the contract, why should the public employees live up to their side?

While Thomas Healey, head of the commission that proposed radical changes to the pension system, called for further action – specifically on the proposals his group came up with:

The alternative, clinging to old ways that have proven unworkable, will doom New Jersey to the fiscal disaster. The choice between chaos and the practical solution offered by the commission is clear.

But what Mr. Healey seems not to have noticed is that….

The decision by the court strips the state of the power to negotiate since they have nothing to negotiate with.  Any commitment of funds on their part for anything over 1% of the state budget in any year, which even minor tweaks to the system would require, is now affirmed to be unconstitutional.  Negotiations would run along the lines of…
.

58 responses to this post.

  1. Posted by Anonymous on June 17, 2015 at 9:27 am

    So if the State wants to switch to a DC plan they cannot commit matching funds if it exceeds 1% of the State budget?Also any changes to the remaining DB plan can’t exceed 1% either? After the dust settles the State may be in the unique position of asking the US Supreme Court to overturn their win.

    Reply

  2. Posted by Eric on June 17, 2015 at 9:45 am

    It has been my understanding, in contract law, that both sides are bound to the agreement, or no one is bound. If I offer to pay you $50 to wash my car, if I feel like paying it, the contract is not one at all but is deemed illusory. This is basic contract law.
    The majority decision, in the funding case, has been driven by nothing more than raw politics. The dissent is correct regardless if one is a public employee or not.
    The cost of living adjustment case encompasses retirees who even retired prior to the law having been changed which has all of the makings of a Banana Republic, since the law in existence when those employees retired, is rendered absolutely meaningless.
    Law is discarded and changed with impunity resulting in no law at all. This manifests the breakdown of our society.
    Eric

    Reply

    • Posted by Anonymous on June 17, 2015 at 9:52 am

      Well you may be right but the reality of the math doesn’t lie either so what is one to do?

      Reply

    • Posted by Tough Love on June 17, 2015 at 12:23 pm

      Eric, You weigh heavily on following the rule of law pay per the contractual (or not ?) agreements. But you, like almost all others sidestep the VERY obvious way that the grossly excessive generosity of NJ’s pensions (and benefits) were obtained …. very clearly by our Elected Officials trading their affirmative votes on Public Sector pay, pensions, and benefits for Campaign contributions and election support…….. and worse, binding a betrayed 3-rd to pay for this unjust excess.

      In ay other venue such collusion would be criminal activity, perhaps bribe giving and accepting, or RICO violations.

      The beleaguered and betrayed Taxpayer has every right to demand that this “wrong” be “righted”, by reducing these unnecessary, unjust, unfair, and unaffordable promises.

      Reply

    • Posted by FAP on June 18, 2015 at 2:23 pm

      Was this a contract between parties or was this a law? If a contract who signed on behalf of the Unions?

      Reply

  3. Posted by Anonymous on June 17, 2015 at 9:49 am

    John a “what if” scenario. Given the recent Detroit 4% retiree benefit reduction, the elimination of COLA & healthcare, and the establishment of a DCP. How do you see a bankruptcy playing out for NJ as it relates to P&B? Assuming pension funds run dry, currently what would be the “State funded” (used losely) annual pension payments to current retirees, excluding current COLA outlays. I guess we’d have to include active workers with benefits earned to date eligible for retirement which would increase the number.

    Reply

  4. Posted by Anonymous on June 17, 2015 at 9:49 am

    John, how is it possible that Millionaires pay more taxes now percentage wise than they did when there was a Millionaires tax? Yet they still complain of being over taxed in NJ. If it were true they would certainly move to another state, however the climate is perfect for them to get richer and richer.

    Reply

    • Posted by Anonymous on June 17, 2015 at 10:08 am

      I don’t think they’re individually paying a higher percentage but a higher percentage of total GIT collections. It’s kind of a good thing for them because if tax rates are unchanged you only pay more taxes if you’re making more on money – nothing to complain about there. Other workers whose wages remain stagnat or in decline will of course pay the same or less in GIT.

      Reply

  5. Posted by Anonymous on June 17, 2015 at 9:55 am

    Christie was the ultimate in a NJ governor. His ability to not only ignore laws already in place to the laws he created was far superior to any other governor. Imagine him running the country. He would also violate international law as well as federal law.

    Reply

  6. Posted by Anonymous on June 17, 2015 at 10:30 am

    Perhaps the publics should be given the option of getting out of the pension system.. I see the point of them not having any choice at all other than being forced into the system and minor deductions taken from their paychecks. Refund any and all contributions with interest and without penalty to any public who wants out and provide fianancial counseling for those who need it to better plan for their retirements.

    Reply

  7. Posted by Ralphie on June 17, 2015 at 11:53 am

    I believe that the Pension Commission recommended a Constitutional Amendment? Wouldn’t this take care of the issue?

    Reply

    • They recommended a constitutional amendment so that benefits could be cut. They were going to have that second part about requiring contributions but if you are able to cut benefits to whatever you want ($0) then there is nothing gained by forcing the state to make contributions to fund benefits.

      Reply

      • Posted by Ralphie on June 17, 2015 at 12:07 pm

        Circular logic. If you don’t want to try and solve this problem, just say so.

        Reply

      • Posted by Tough Love on June 17, 2015 at 12:35 pm

        John, let’s be fair, you make it sound like that under the Commission’s proposal, the State had unilateral authority cut pensions (even to $0). That was not their proposal.

        Reply

        • Posted by Anonymous on June 17, 2015 at 1:14 pm

          There’s no need for a constitutional amendment on pension benefits earned if you freeze the current plan and establish a DCP. Unless your intention is exactly as John has indicated. COLA’s are basically permanently eliminated and healthcare can be contractually changed.

          Reply

        • They did propose to cut benefits to $0 for anyone looking for Defined Benefit accruals in the future though they understood that a constitutional amendment was necessary.. Once that gets passed, then who’s to stop a governor interpreting that amendment as allowing the cutting all benefits to whatever the state can afford – which by then might be damn close to $0? The New Jersey Supreme Court?

          Reply

          • Posted by Tough Love on June 17, 2015 at 1:32 pm

            I agree that FUTURE DB accruals should be ZERO … these Plans must end as future elected Officials cannot be trusted to undo whatever reforms are made.

            Realistically, there won’t be very material cuts in PAST service accrual, and perhaps none, if the Public Sector Healthcare benefits are rightfully reduced to what Private Sector workers typically get in employer-sponsored benefits (ESPECIALLY, retiree healthcare benefits …. typically, NOTHING).

          • Posted by Anonymous on June 17, 2015 at 1:50 pm

            Ah yes don’t worry and trust them, they’ll do the right thing. Another c.78 all over again, no don’t think so. Any mention of benefit accrual restriction in a constitutional amendment must clearly state it’s for future benefit accruals not benefits earned as of the effective date TBD. Otherwise there’ll be no chance of a deal.

  8. Posted by fouls123 on June 17, 2015 at 12:27 pm

    There is a very simple solution. Just raise taxes, enough and cut giveaways to business and make any budget cuts possible.Would the state supreme court still find abbott district money sacrosanct? How could they after the latest ruling? Any way, state income taxes are not that high. Most people are squeezed by the high property taxes which are school taxes mostly. The time has definitely come for school district consolidation. That would save the taxpayers a considerable amount of money. Let’s have a constitutional amendment to let the state consolidate school districts to generate the savings needed in conjunction with tax increases. Problem solved.

    Reply

    • Posted by Tough Love on June 17, 2015 at 12:39 pm

      Quoting ….. “There is a very simple solution. Just raise taxes, enough and cut giveaways to business and make any budget cuts possible”

      Why, so clearly unnecessary, unjust, unfair, and unaffordable pensions & benefits ….. negotiated in “collusion” (per my earlier comment) …. can be paid in full ?

      Might you be one on the collecting end of this thievery ?

      Reply

      • I agree on a tax increase – tax any pension over $40,000 (current SS maximum individual payout) paid by any state, county or municipal authority @ 50%. That should help raise some revenue to beef up the pension fund(s).

        Reply

      • Posted by Anonymous on June 19, 2015 at 7:58 pm

        Now is your chance TL, quit your job and get a public sector job with grossly excessive benefits. Oh wait, you mean you can make it on 50k a year while paying 1/3 of your health benefits? Add in 10% towards your pension that you may or may not get. Go for it!

        Reply

  9. Posted by javagold on June 17, 2015 at 2:27 pm

    Solutions Simple. Tax 99% if their public takers pensions. And make them pay 100% for their public takers health benefits. Lower property taxes 67% and they can make up the money on their tax bills.

    Reply

    • Posted by Anonymous on June 17, 2015 at 2:49 pm

      Hey you’re a genius, maybe you should run for Governor next. Quoting TL “still the idiot” or “imbecile” your choice.

      Reply

  10. Posted by fouls123 on June 17, 2015 at 5:25 pm

    Does anyone disagree that we need to consolidate school districts?. Having 660 separate school districts wastes more tax money than anything else. regardless of what is done with pensions, this would create a huge tax savings by reducing administrative costs. do we need 660 different school superintendents and staffs, really? This is where most of your property tax money is going. Your school taxes are 4 to 5 times what your income tax bill is because school superintendents and administrators and staff are each the highest expense. Check out the highest pensioners. They are all school administrators.,

    Reply

    • Posted by kris ustaszewski on June 17, 2015 at 5:37 pm

      totally agree. The majority of public pensions are not the above the middle class level at best. Many of the upper pensions that the people on this site get upset about are generally school administrators or double dippers who are former political hacks. what other state in the union has so many separate districts. it is not the teachers pensions that are the problem it is the fact that each school seems to be it’s own district

      Reply

      • Give yourselves credit for a good idea – eliminate all current school districts in favor of county schools. One administration for all schools in the county and all schools receive the same per student funding.

        But at the same time change pensions for all school employees (and all other PS employees) so that no benefits are received before age 65, and no pension exceeds $60,000 per annum. Do those three things and taxes will go down and the pension fund(s) will be saved!

        Reply

        • Posted by Tough Love on June 17, 2015 at 7:05 pm

          Perfect …. and I totally agree.

          What others want is the savings from school consolidation to go towards the funding of their grossly excessive pension promises, but no matter how much money is saved from that consolidation (or from any other savings initiatives), there remains FULL justification to end ANY Public Sector pensions & benefits greater than what the Taxpayers typically get.

          Earth to Public Sector workers ….. you’re not “special” and deserving of a better deal (greater pensions and better benefits) on OUR dime ….. EVEN IF we could find the money to do so.

          Reply

  11. Posted by Tough Love on June 17, 2015 at 5:59 pm

    Quoting ……. “The majority of public pensions are not the above the middle class level at best. ”

    To be blunt, horseshit. They are ROUTINELY 3x to 4x greater in value at retirement (4x-6x for safety workers) than those typically granted Private Sector workers retiring at the SAME age with the SAME pay, and the SAME years of service.

    DEMONSTRATIONS of that can be found in my 2 long comments towards the end of the comments attached to Mr. Bury’s earlier post found here:

    https://burypensions.wordpress.com/2015/05/14/its-embarsaing-and-im-tired-of-hearing-this-i-want-what-i-was-promised/#comments

    Reply

  12. Posted by fouls123 on June 17, 2015 at 6:40 pm

    The same rate of pay is where the argument breaks down.The same job is all you can legitimately compare and very often the same job doesn’t exist in private industry.You might decide you could compare the job of a state governor to that of a corporate CEO. If so , find me a governor who has over a million dollar salary. Part of the issue is that most public sector salaries are far lower than say corporation salaries. I have yet to see a survey of best jobs and pay that ever mentions public sector jobs. Private sector pay and benefits vary to such a wide degree ranging from minimum wage service jobs like McDonalds to corporate CEOs and athletes who make in the millions. How much does a private sector policeman or private prison administrator make? How much does a corporate lawyer with the same amount of tenure make as opposed to a prosecutor? Most people work where they work because they need a job whether it is in private industry or public. Do you really believe most people if given the chance would leave their private sector job to get a public sector job? Only if they are in a minimum wage job, probably. People over the past 30 years haven’t been beating down the door to work for the state or municipalities. Generally people are working in the public sector because when they were looking for work they found work there. Did you apply for public sector work/ I doubt it. I guess the pay and benefits weren’t so attractive to you then. huh?

    Reply

  13. Posted by Tough Love on June 17, 2015 at 6:57 pm

    Quoting … “Part of the issue is that most public sector salaries are far lower than say corporation salaries. ”

    Not according to scholarly studies. The one linked below shows in Figure 1 that NJ Public Sector wages (i.e., “cash pay”) are indeed 4% lower on average vs their Private Sector counters parts, but on a “Total Compensation” basis (wages plus pensions plus benefits) per Figure 6, NJ’s Public Sector workers swing to a 23% compensation “advantage”, and, when the incremental value of much greater Public Sector job security is included, that 23% Public Sector compensation “advantage” rises to 34%. There is ZERO justification for this.

    Taxpayers ……. think about that. How much better would YOUR retirement be if YOU had an ADDITIONAL 23% of pay to save and invest in EVERY YEAR of your career ….. as do Public Sector workers RIGHT NOW.

    https://www.aei.org/wp-content/uploads/2014/04/-biggs-overpaid-or-underpaid-a-statebystate-ranking-of-public-employee-compensation_112536583046.pdf

    Reply

  14. Posted by Tough Love on June 17, 2015 at 9:15 pm

    More “required reading” for the Public Sector taker/deniers………..

    I suggest that you read the LAST paragraph twice.

    http://nypost.com/2015/06/14/new-jersey-unions-need-to-face-failed-pension-facts/

    Reply

  15. Posted by javagold on June 17, 2015 at 11:51 pm

    I hope the Neptune cop who killed his wife doesn’t lose his pension. Would not be fair. He was promised it.

    Reply

  16. Posted by fouls123 on June 18, 2015 at 12:40 am

    There is just no way to compare private sector versus public sector jobs and compensation because of the variety involved unless you would compare one specific job where the duties, risks and everything else is virtually identical and that scenario probably doesn’t exist, and even if it did it would be too small a sample. However, you do make me feel better about my work choice. And if Public sector workers are so overcompensated they must be paying the bulk of the taxes anyway, right? So if we raise taxes, it will be mostly on the public sector people anyway, right?

    Reply

    • Posted by Tough Love on June 18, 2015 at 2:18 am

      Oh sure, because the Public and Private versions of similar jobs aren’t 100% identical the compensation comparison can’t … and shouldn’t … be made ? Really ???

      Then how come there are dozens of such Gov’t and University studies on the subject?
      ————————————–
      And I just loved the “we pay taxes too” BS …………

      Ever notice that ONLY 2 groups support (and sometime RALLEY FOR tax increases) ?

      The first group are welfare recipients and those who earn VERY little, pay little to no taxes, and get food stamps and similar social services. THEY do so because they like free stuff (paid for via taxes) without paying for it themselves.

      The 2-nd are Public Sector workers who know that about 80% of all incremental taxes come from the 80% of all workers who work in the PRIVATE Sector, but that almost 100% of the incremental taxes (from EVERYONE) will go solely to support the overstuffed (and now seriously underfunded) Public Sector pensions ….. about a $5 return on each $1 of extra taxes that THEY pay …… of course they will support and RALLY for tax increases.
      ———————————————–
      ————————————————-

      But keep trying …. maybe a few uninformed readrers will fall for your BS.

      Reply

      • Posted by Anonymous on June 18, 2015 at 2:41 pm

        We’ll see after the next two November elections and then the governor’s race. Based on your BS Republicans should have a clean sweep!

        Quite contrary, I can’t comprehend why there’s as many Republicans because unless you’re staunch pro-life, anti-gay or in the 1% why wouldn’t you vote Democrat? We all know both parties have to play the political pay back game. Question is who else will benefit from their policies the 1% (lower taxes, cuts to pensions, social security, medicare, etc.) or the 99% (slightly higher taxes, with minimal changes to pensions, social security, medicare, etc.). Ultimately it’s up to each of us to decide what’s best for us and the U.S.

        Reply

        • Posted by Tough Love on June 18, 2015 at 3:44 pm

          The very LARGE Private Sector non-Public Sector “Middle Class” is rapidly wising up to the fact that the Democrats shovel WAY to much of THEIR money to the Public Sector workers.

          Reply

    • Posted by S Moderation Douglas on June 18, 2015 at 10:17 pm

      fouls123

      There is a way to compare private and public sector compensation. It’s called the “human capital model” of wages, which the Congressional Budget Office (CBO) has termed “the dominant theory of wage determination in the field of economics.”

      ” Regression analysis compares the pay of full-time state government and private-sector workers while controlling for differences in education, experience, and other characteristics that predict earnings. Any difference in earnings after controlling for these characteristics is taken to be driven by the sector in which the employee works. This statistical method has been used by economists for decades to examine pay differences attributable to race, gender, educational attainment, union membership, and other factors.”

      And TL is correct. There are dozens of studies on the subject. There are minor discrepancies due to sample sizes, areas, and time periods, etc. but almost invariably they all agree that in wages only, public workers earn less than “equivalent” private sector workers. The average public disadvantage is about 7 to 12 percent.

      Most important. …they all agree that, in general,

      A) High school graduates, or GEDs, earn about the same in public or private sector

      B) Those in the private sector with a Bachelor’s degree earn about 22% more than Bachelor’s in the public sector.

      C) Those in the private sector with PhD or professional degrees make about 59% more than equivalent public workers.

      The big controversy is how much public pensions and benefits compensate, or overcompensate, for the lower public wages.

      Reply

      • Posted by Tough Love on June 19, 2015 at 12:41 am

        Quoting …. The average public (wage) disadvantage is about 7 to 12 percent. ”

        The Study that showed the HIGHER figure of 12% was for the entire nation. In that SAME study, the Private Sector “wage” advantage was only 4% in NJ. But …. when the study moved to include the value of pensions and benefits, that 4% PRIVATE Sector wage advantage shifted to a 23% PUBLIC Sector Total Compensation advantage.

        And yes, that study showed a considerable Private Sector advantage* for those in the “professional” and “PHD” categories. But big woop, as Private Sector “professionals” and PHDs” encompass only 2% +1% = 3% of all Private Sector workers.
        —————————————

        * A Private Sector “advantage” that would likely be FAR FAR smaller if the outlier multimillion-dollar-earning Private Sector “professionals” e,g, cosmetic Surgeons, etc.) and “PHDS” (drug company owners, etc.) were removed from the study database

        Reply

  17. Posted by Eric on June 18, 2015 at 9:13 am

    Tough Love:
    Your comment to me regarding cost of living adjustments pertains to the amount of pensions received that you say is grossly overvalued. This is a separate issue.
    My point focuses upon the person performing physical labor at a job for 40 years, looks at his or her employee handbook, is guaranteed a cost of living adjustment, not only in the handbook, but also by NJ statute. Let us even assume that he or she never checked the statute. This person relies upon the then existing law, retirees and now cannot pay his or her bills due to the exploding rising living costs.
    I know many, let us say, more sophisticated retirees, who did not purchase life insurance policies since they relied upon the cost of living adjustments for increasing the pension amounts to potential surviving spouses. Due to the change in the law, AFTER THESE PEOPLE RETIRED, they no longer receive cost of living adjustments and no longer are able to secure life insurance since they are too great of a risk for an insurance company to issue them a policy. They relied upon the existing law at the time they retired and were royally screwed for their reliance.
    The cost of living adjustment in NJ is extremely modest, unlike many other states, since the calculation is only a fraction of the Consumer Price Index (CPI). The CPI itself, also fails to adequately measure inflation due to politics where seniors are cheated out of adequate cost of living adjustments for social security. The CPI works on substitution. For example, if steak is too expensive, let us substitute hamburger. There therefore is no inflation tracked by the index. If hamburger becomes too expensive etc….
    This has been discussed on a post on NJ Spotlight.
    Eric

    Reply

    • Posted by Tough Love on June 18, 2015 at 9:44 am

      Eric,

      Seriously, with Public Sector pensions ROUTINELY 3x-4x multiples greater in value at retirement than similarly situated (in pay, years of service, and age at retirement) Private Sector workers (those Public pensions being “negotiated” with NOBODY at the table looking out for Taxpayer interests), and with Private Sector pensions NEVER including provisions for annual COLA increases, and including full actuarial reductions of about 5% per year for EACH year of age that you begin “collecting” your pension before age 65 (unlike Public Sector workers who can collect full/unreduced pensions at 60 or even 55) …. AND, it being BOTH legal and quite common for Private Sector pension Plan sponsors to reduce (or eliminate) future service pension accruals ……… to have ANY sympathy for the changes now being demanded of Public Sector workers ?

      Reply

  18. Posted by george on June 18, 2015 at 9:25 am

    “why should the public employees live up to their side?”

    What is their side of the deal? Retirees cash checks and if they still live in NJ vote.

    Reply

  19. Proving once again Publuc Takers Salary + Pension / Property taxes = accounting entry and nothing more. Because they produce nothing.

    Reply

    • Posted by Anonymous on June 18, 2015 at 2:32 pm

      Very tragic, ashamed you decided to make light of it. Ever think it’s job stress similar to our beloved Armed Forces returning from battle. Now I know not all first responders are on the front lines but even the possibly threat weighs heavy. BTW: isn’t like private sector individuals, especially executives, haven’t bloodied their hands legally or morally and walked away with millions!

      Reply

      • Posted by Tough Love on June 18, 2015 at 4:03 pm

        Quoting …”especially executives, haven’t bloodied their hands legally or morally and walked away with millions!”.

        Perhaps true, but such actions will never justify your grossly excessive Pensions & Benefits.

        Reply

  20. Can legitimate pay/benefits comparisons be made to similar jobs in the EU?

    Reply

  21. Posted by dentss dunnigan on June 18, 2015 at 7:34 pm

    Schools districts will never …but never be merged along with any service ,because it goes against politicians voting base ,gives them less power ,their corrupt not stupid .

    Reply

    • Posted by Tough Love on June 21, 2015 at 8:59 pm

      Merger initiatives in the PUBLIC Sector have a fatal flaw …. from the start.

      ALL seem to start with an “agreement” between the Unions and the Elected officials of the towns considering such mergers that staff reductions will ONLY occur via “attrition” (retirements and voluntary termination).

      Then why bother wasting our time. EVERYONE involved in Corporate mergers knows that 90% of the savings come from quick HEADCOUNT REDUCTION (layoff, firings), and there are ALWAYS many many redundancies when 2 organizations combine.

      Since when is it the OBLIGATION of the TAXPAYERS to keep employed those who are no longer needed ?

      Taxpayers …. DEMAND better of your Elected Officials or throw them out of office.

      Reply

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