What Mercatus Missed

Before Chris Christie starts bragging about New Jersey NOT being last in a Ranking of States by Fiscal Condition that the Mercatus Center released today he should be aware of two things:

1) It was close for last (per the last footnote in their Summary):

New Jersey’s fiscal condition score is –1.8563 and Illinois’s is –1.8586. This is why New Jersey is ranked 49th and Illinois is ranked 50th, though the rounded scores are the same.

2) The comparison was based on 2013 audited financial statements.  In New Jersey’s case that means New Jersey auditors.

Actuaries in New Jersey are bullied/cajoled/bought-off to provide ridiculously rosy numbers on pension liabilities so why wouldn’t auditors get the same treatment?

In any case, the full Mercatus report has New Jersey playing a prominent role:

Three states—Illinois, Pennsylvania, and New Jersey—were flagged for their underfunded pensions. (page 3)

Table A2 in appendix A shows three states, Massachusetts, Louisiana, and New Jersey, with operating ratios that are slightly less than one (0.98, 0.97, and 0.93, respectively), indicating that revenues are slightly less than total expenses and the state must take action to address a shortfall. The other indicator of budget solvency is surplus or deficit per capita, measured as the change in net assets divided by the state’s population. Net assets indicate whether the government has resources remaining after paying its debts. Most states report a surplus, with an average of $473 and a median of $210 across the states. Eight recorded a deficit within FY 2013: Illinois, Maryland, New York, New Mexico, Kentucky, Massachusetts, Louisiana, and New Jersey. (page 14)

Conversely, several states have negative ratios, indicating potential difficulty in meeting long-term obligations. These states include New Jersey, Illinois, Massachusetts, Connecticut, California, Kentucky, New York, Maryland, Rhode Island, Pennsylvania, Wisconsin, North Carolina, and Vermont. (page 16)

In FY 2013, the average long-term liability per capita is $2,768. Nebraska has the lowest long-term liability per capita, at $254, and New Jersey has the highest long-term liability per capita, at $8,662. A smaller number is considered less of a burden on the state’s fiscal resources. (page 17)

The z-scores for long-run solvency range from 10.09 for Nebraska, indicating the state is 10 standard deviations above the mean for long-run solvency in the states, to a low of −5.21 for New Jersey, or five standard deviations below the mean. The wide dispersion in scores is likely driven by the size of long-term liabilities per capita. (page 17)

New Jersey ranks relatively high in service-level solvency, at 20. Looking at the metrics behind the rank, total state personal income in New Jersey is $493 billion. Taxes, revenues, and expenditures account for 6 percent, 12 percent, and 12 percent of total personal income, respectively. On this basis, New Jersey appears to have plenty of room to find revenues to address its ongoing budgetary shortfalls and growing pension burden. Yet institutional factors complicate the picture. New Jersey’s income tax is highly progressive, with the state deriving nearly 50 percent of its revenues from the top 10 percent of income-tax filers. These are revenues highly vulnerable to market downturns. In addition, New Jersey’s income tax revenues are constitutionally dedicated to the Property Tax Relief Fund, which funds school aid, municipal aid, and property tax rebates. New Jersey’s biggest reason for fiscal stress is its large, rapidly growing pension and health care obligations. Yet the current tax structure, a largely mandated budget, and legal barriers to how income-tax revenues may be used make finding the revenues to fund long-term pension obligations difficult. (page 19)

The states with the highest per capita debt were New Jersey ($4,556), Hawaii ($5,357), and Connecticut ($5,481). These three states also had the highest debt levels relative to personal income, one measure of the tax base. Hawaii’s total primary government debt represented 12 percent of residents’ personal income in FY 2013. Connecticut had the second-highest level of debt to personal income, at 9 percent, followed by New Jersey and Alaska, at 8 percent. (page 22)

When including the total pension and OPEB liabilities payable to public- sector employees over the coming decades, many states are in an acute situation in terms of the large claims on future revenues. In particular, the states that have performed poorly in the fiscal rankings—Illinois, New Jersey, Connecticut, Hawaii, and Pennsylvania—are also notable for their large, unfunded pension liabilities and largely unfunded OPEB. (pages 25-6)

By contrast, as table 11 shows, the states that rank toward the bottom include states with ongoing structural deficit problems and difficulty achieving annual budget balance, in addition to long-term debt and pension pressures. These states include New Jersey, Illinois, Massachusetts, Connecticut, and New York. (page 26)

49. New Jersey. New Jersey ranks 49th for fiscal condition in FY 2013, largely owing to two factors: structural budgetary imbalance and climbing pension and OPEB obligations. New Jersey has struggled to balance its budget for more than a decade. The state’s tax system depends heavily on the income tax and in particular on high earners, leaving revenue collections vulnerable to market downturns. Over two decades, the state did not make consistent annual payments to the pension system. Additionally, debt was incurred to finance school construction and the pension system. The result is an accumulation of unfunded liabilities as well as ongoing structural imbalance in the budget, and rising outstanding obligations that are placing increasing demands on state resources. The state’s CAFR reports that long-term debt obligations increased by $6.6 billion, $5 billion of which represents the annual required pension contribution. New Jersey’s unfunded pension obligation totals $42 billion; it is 60 percent funded according to actuarial reports issued in FY 2013. On a market valuation or “guaranteed-to-be-paid” basis, the unfunded liability is $135 billion, or 27 percent of residents’ personal income. On a risk-free basis, the system is 32 percent funded. Total bonded debt is $40 billion, or $4,556 per capita, representing 8.2 percent of New Jersey residents’ total personal income. (page 35)





37 responses to this post.

  1. Posted by Anonymous on July 7, 2015 at 1:17 pm

    Bottom line, raise you kid to be a bold face liar and he or she will be very successful in life as far as gaining money and power


  2. Posted by Tough Love on July 7, 2015 at 1:29 pm

    The “driver” and take-away ………………..

    “New Jersey’s biggest reason for fiscal stress is its large, rapidly growing pension and health care obligations.”


    • Posted by S Moderation Douglas on July 7, 2015 at 3:57 pm


      The biggest reason for the “large, rapidly growing pension and health care obligations.” is…….

      They never made the required payments for the last twenty years.


      • Posted by Anonymous on July 7, 2015 at 4:09 pm

        Point taken and of course the counterponit being ARC too high due to generous P&B. I’m not taking sides but neither side can really prove their point without a retrospective analysis based on ARC for less generous P&B. Which, I understand, is pointless to solving the current problem.


        • Posted by Tough Love on July 7, 2015 at 4:21 pm

          Accurately stated.


          • Posted by dentss dennagan on July 8, 2015 at 12:35 pm

            If the stock market increased 30% a year for the last 25 years ,there would be no need for state to contribute any money .

          • Posted by Tough Love on July 9, 2015 at 6:40 pm

            True, but the promised pensions would STILL be unnecessary, unjust, and grossly excessive.

            What, we have no better uses for the gains from booming investments than to OVERCOMPENSATE our workers. How about increased education funding, better schools, assistance for the elderly and infirm, and how about simply LOWER taxation ?

      • Posted by Tough Love on July 7, 2015 at 4:20 pm

        And the VERY justifiable reason for NOT doing so (in past years as wells as in future years) is the GROSSLY EXCESSIVE “generosity” of theses Plans, granted by self-interested Elected Officials whose favorable votes were BOUGHT with Public Sector Union campaign contributions and election support.


        • Posted by S Moderation Douglas on July 7, 2015 at 6:14 pm

          It’s like deja vu, all over again. With CAPS LOCK

          CAPS LOCK: It’s gonna happen, whether you like it or not.


  3. Posted by Anonymous on July 7, 2015 at 5:35 pm

    We are rich and TL has nothing to show for her life of toil.


  4. Posted by Anonymous on July 7, 2015 at 7:47 pm

    Let’s all be realistic, again I’m not taking sides. Short of paying the current ARC going forward, which is clearly not reasonably possible, what are some alternative solutions.


    • Posted by Tough Love on July 7, 2015 at 8:09 pm

      Material reductions in FUTURE service accruals (whether via a new DC plan, a new Cash Balance (DB) Plan, or significant reductions to the formulas and provisions of current Plans) and material reductions in currently granted healthcare benefits and subsidies to both actives and retirees …………….. just as proposed by the NJ Pension Commission.


      • Posted by Anonymous on July 7, 2015 at 9:01 pm

        Clearly someone who understands what is meant by a (workable) solution. Like cutting everyone’s SS check by 25% (or whatever the #) would be considered reasonable by a majority. Not likely. More likely, would result in this country experiencing widespread social upheavel.


        • Your analysis is correct. We are headed for desperate times. The US Gov’t. debt (that they acknowledge) is over $18 Trillion. Add another $50, $100 or more trillion in present value deficiencies for unfunded future liabilities for Medicaid, Medicare, SS and Federal Govt. pensions (depending on who you ask) and we are headed for complete fiscal chaos. Just wait until the EBT cards and other assorted welfare programs run out of $. Serious “social upheaval” then. That is why these stupid comments about State of NJ pensions are so laughable. No money, no pension.


          • Posted by dentss dennagan on July 8, 2015 at 12:39 pm

            Their won’t be a cut there will just be means testing ,then a higher tax ,people making over $30K will have to declare total amount received .Something like NJ property tax you only can take first 10K off your taxes

    • When SS runs out of claims on the US Treasury (for contributions stolen since 1983 and spent on other Gov’t. programs) current receipts are projected to only cover 75% (or less) of benefits. Absent other government allocations that means the SS checks will be cut pro rata by 25%.

      That is how it is going to work out for the PS pension drones in NJ. Whatever is in the till will be paid out; if less than needed to pay the expected (but mostly undeserved) pension benefit it is called TS. That is the “solution”.


      • Posted by bpaterson on July 9, 2015 at 3:53 pm

        still wonder about this: if the private sector’s “pension” aka social security is based on taking 6% out of salary for the first $100,000 salary yet after 45 years of work that worker ends up getting $30k annual SS payments, then how did NJ expect to pay a pension of someone who would give 6% of their pay of $100,000 and after working only 25 years get $50,000 pension a year. This is what needs to be cleared up and readjusted if need be.


        • Posted by Tough Love on July 9, 2015 at 4:48 pm

          Like I’ve been saying ….. GROSSLY EXCESSIVE pension (and benefit) promises made by elected officials BOUGHT with Public Sector Union campaign contributions and election support.


  5. Posted by BH on July 7, 2015 at 9:01 pm

    Short of paying the ARC…..which should be a must, at minimum…
    Stop all the huge loop holes that allow corporate giants to do business virtually tax free
    Stop paying Chrispies friends millions to manage funds while losing the money
    Stop making poor decisions like privatizing the lottery, losing millions more
    Stop over funding these Abbott school districts, while others make a fortune off it..(nor cross wink wink)
    Stop allowing Chrispie to remain governor while away from the state 50% of the time costing the taxpayers millions extra
    Stop paying the required pension payments at the end of the year, and pay in the beginning.
    Stop the double dippers, part time pension holders and all politicians from receiving free pensions and healthcare for nothing
    Stop vilifying these hard working individuals. Raise taxes and fund the system.
    Take the Local plans out of this mess and give those funds to the unions to control.
    Stop allowing healthcare to raise rates by 20-30% per year.
    Stop listening to people like TL who claim a state worker making $55,000 per year is the problem and put an end to this private vs. public equal and fair bullcrap.


    • Posted by Tough Love on July 8, 2015 at 12:33 am

      Quoting …. “Stop listening to people like TL who claim a state worker making $55,000 per year is the problem and put an end to this private vs. public equal and fair bullcrap.”

      At EVERY (yes EVERY) income level …. $25K, $55K, $90K, $125K …… NJ’s Public Sector pension are ROUTINELY 3x-4x (4x-5x for Safety workers) greater in “value at retirement”* than those typically granted Private Sector workers retiring at the SAME age, with the SAME pay, and the SAME years of service. This is INDEED the problem, and Public Sector pensions & benefits EQUAL to but no greater than those of their Private Sector counterparts is INDEED the appropriate and “fair” goal.

      * “value at retirement” encompasses not just the much greater per-year-of-service pension “formulas”, but also the incremental “value” of MUCH younger FULL/UNREDUCED retirement ages (always 55 or younger and sometimes even age 50 for Safety workers, vs 65 or sometimes 62 with long service in the Private Sector), the incremental value of annual COLA increases (now suspended in NJ, but virtually unheard of in employer-sponsored Private Sector pensions), and the MUCH more liberal definition of “pensionable compensation” in the Public Sector.


      • Posted by BH on July 8, 2015 at 9:36 am

        You’re still talking, I’m not listening.
        From day one I admitted that the State plans are far worse than the Local plans. This is because of sound management. While the municipalities made the required payments along with the workers, over decades, the state failed to make the required contributions. Along with other details like, allowing state workers to only pay 5% into pensions… Etc….. This worsened the problem.
        The State plan is a mess…….. This all should be focused on them.
        The local plans… The state police, municipal police and fire should simply be carved out of this. Allow the thievery of chapter 78 to show it will work in these plans and focus on the state problem.
        You keep spewing equal and fair….. I I keep countering with …. Make their jobs as safe as yours and we can talk about equal… You divert by showing some article how police or fire are not on some list of dangerous jobs…. I’ll produce one that does…. In either case….there is no private job that equates to a police or firefighter….their plans are sustainable…. Leave these people out of this mess. They’ve paid the most all along and continue to do so. It amazes me that while sitting behind your computer…you villify these safety workers…. As if you could EVER do the job!!!! Be thankful these people do it. They negotiate with their respective municipalities… Not the state!!! Their salaries are paid by the taxpayers if their respective towns…. Healthcare paid by them and their towns…. Leave them be!!!! This is ridiculous!!!!


        • Posted by Tough Love on July 8, 2015 at 11:32 am

          Yes, we know you arenot listening. That’s what greedy self-interested people do, even when presented with necessary and “FAIR” changes.


        • Posted by Tough Love on July 8, 2015 at 12:23 pm

          BH, your mistake was choosing NJ (whose citizens won’t be paying for the absurd pension & benefits “promises” that have been made) and not having your Public Sector family members settle in San Ramone CA and become firefighters …. boy they REALLY know how to rip-off their taxpayers.


          Public Sector Unions are a CANCER inflicted upon a civilized society.


        • Posted by Anonymous on July 8, 2015 at 1:30 pm

          State Police is of course State funded not local, higher contribution rate, higher benefits, no SS, but bottom line is if you’re “carving our” locals you can’t start picking and choosing at the “State” funded level.


          • Posted by Tough Love on July 8, 2015 at 1:48 pm

            It’s ALL funded by the taxpayers …. and with 50%-75% of the promised pensions & benefits an unnecessary, unjust, unfair, and unaffordable … rip-off of taxpayer wealth.

  6. Posted by Anonymous on July 8, 2015 at 9:10 am

    Here’s the problem, we’re still blogging about it and politicians are still talking about it. Time for action, let’s (NJ) take the lead for once.


    • Posted by BH on July 8, 2015 at 9:46 am

      Where is your governor??? All we can do is………. Blog!!!
      Your beloved Chrispie got you all fired up and then walked away….. As if he ever really cared about you or NJ. This is my state too. I pay taxes too. And it’s clear he wound all you idiots up….laughed….jumped on his plane and threw us all the finger!!!!!
      Meanwhile We private sectors hate and villify the public workers because we’ve been lied to and because we are nothing more than meat with eyes… We believe every corrupt word we are fed!!! This blog is based in that. Marinates in it!!!! Loves it!!!
      At the end of the day…… If the state payed what it was supposed to, from day one, the plans would be sustainable and solvent. Negotiations would have taken place to offset the salaries and benefits to keep in line with current economic social conditions. Over decades…. If the right thing was done by our government…. We would all be happy holding hand signing cumbayya….
      But because it wasn’t…. We want to blame the workers???? Take from the to fix a hole that they didn’t create??? Stupidity is what this all is!!!
      I will fight beside you…. Against you…. The entire time…. Because you are wrong!!! Pay these people their money!!!!!!


      • Posted by Javagold on July 8, 2015 at 10:20 am



        • Posted by BH on July 8, 2015 at 10:49 am

          Why? It’s not 100% true??
          And you know it is…… People will always agree and disagree….. Somewhere in the middle… The truth is found.


          • Not necessarily. People interpret what they are told are facts based on their perspective and self-interest. The problem with public pensions is all the lying going on about values.

            For example, New Jerseyans are told, and some have come to believe, that if Christie were to make that extra $1.6 billion payment the plans would be funded so those who come out on the side of making that contribution think it’s a relatively small price to pay. If they knew that the real number to fully fund the plans were $160 billion and rising some might still want to pay it (out of honor and duty possibly) but their decision to make the payment would be fully informed instead of based on the propaganda all vested interests are pushing.

          • Posted by BH on July 9, 2015 at 2:59 pm

            Yes, but what if the state made all it’s required contributions since day one?
            Everyone knows the $1.6 billion wont fix the pensions but it goes a long way with helping repair it.

          • Posted by Tough Love on July 9, 2015 at 4:44 pm


            $160 Billion in the hole (in cash that should be in-hand today) and you think $1.6 Billion ….”goes a long way with helping repair it”.

            Really ?

            It’s ALREADY DEAD, and “denial” is not a solution.

        • Posted by Tough Love on July 8, 2015 at 11:45 am

          Well said !

          And he’s back to his old BS standby …. “If the state payed what it was supposed to, from day one, the plans would be sustainable and solvent.”

          Yea, if the State and it’s taxpayers were actually STUPID enough to fully fund safety-worker pension promises (CLEARLY the result of underhanded dealings between our Elected Officials and their Unions) that are 4x to 5X greater in value at retirement than those of similarly situated (in pay, age at retirement, and years of service) Private Sector workers.

          Such pensions were NEVER necessary, just, fair (to the Taxpayers) or affordable …. and should NOT be honored.

          And FREE retiree healthcare starting in their 50s (with an additional taxpayer cost of $250K-$400K for family coverage).

          Really ??? Where does this theft of taxpayer wealth end ?


  7. State government is only one third of the picture. Based on state and local government debts, past capital construction investments, and pension underfunding, I rank New Jersey as having the fifth most sold-out future among states.


    If NYC were a separate state it would be the worst. As it is Rhode Island is the worst.

    Detailed discussion of debt and infrastructure here.


    And public employee pensions here.


    The spreadsheet attached for the first post has debt, capital construction, and pension revenue, expenditure and asset data for all 50 states for all years the Census Bureau collected data from FY 1972 to FY 2012.


    • “If they knew that the real number to fully fund the plans were $160 billion and rising some might still want to pay it (out of honor and duty possibly) but their decision to make the payment would be fully informed instead of based on the propaganda all vested interests are pushing.”

      My back of the envelope calculation was that the NJ state and local government pension plans were a combined $140 billion in the hole in FY 2012. That is the additional pension assets that would have been required for pension benefit payments to equal just 4.0% of those assets.

      That pension hole equaled 28.7% of all the personal income of all the residents of New Jersey in 2012. New Jersey’s state and local debts equaled 22.3% of the personal income of state residents, and the hidden debt associated with low infrastructure and school building capital construction expenditures from FY 1980 too FY 2012 was another 13.3% of personal income. That adds to a hole of 64.4% of New Jersey residents’ personal income in FY 2012, compared with a U.S. average of 47.1%.


  8. Posted by Anonymous on July 9, 2015 at 10:19 am

    There’s nothing draconian about prospective implementation of the P&B Commission reforms. We can debate, in adnausiam, the how and why of the problem but it solves nothing. A constitutional amendment detailing reforms and funding so it’s clear for everyone.


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