The main fallacy* of New Jersey Senate president Stephen Sweeney’s federal loan proposal for public pensions is believing that a government in need of cash primarily because of a demonstrated penchant for fiscal incompetence will benefit from an open-ended stream of cash.
As it stands now were New Jersey to get an extra $50 billion to filter through their pension system the political infrastructure in place might even raise pension benefits by 10% again as the the plan would be overfunded to their way of thinking.
* There are an amazing amount of specious arguments and flat-out errors throughout Sweeney’s piece and I might have missed some:
For years, New Jersey’s pension funding crisis has been like the proverbial 600-pound gorilla in the room – too big to ignore, hard to move and crowding out everything else.
For decades the pension funding crisis has been ignored except for bursts when somebody comes up with a stupid no-real-pain idea that winds up making the situation worse.
Many people assume that pension underfunding is primarily a New Jersey problem – or one we share with Illinois and a few other states whose governors and legislators took the easy way out and skimped on years of pension payments.
Many people also assume their governments are paying their bills.
State pension obligations now top $1 trillion across the country. Twenty-seven states have unfunded pension liabilities of more than $10 billion each. Twenty-six states have funding ratios below 70 percent and would be considered “at risk” if they were private sector pensions subject to federal Employee Retirement Income Security Act standards.
There are other ERISA “at-risk” factors and were they applied to valuing public plan liabilities (instead of those UP84, 7.95% assumptions) then almost all state plans would be considered “at-risk”.
That is why I proposed the creation of a national pension debt restructuring program that would enable Federal Reserve banks or another federal entity to make low-interest loans available to states to pay off their unfunded pension liabilities.
Fannie Mae and Freddie Mac style?
For New Jersey taxpayers, paying off the $40 billion unfunded liability up-front would cut the future cost of pension payments in half. Instead of paying $6 billion a year for almost 30 years to cover pension costs for teachers and state employees, as the Christie administration currently projects, New Jersey taxpayers would end up paying less than $3 billion a year – including the cost of repaying the loan at 2.7 percent interest, which is the going U.S. Treasury long-term rate.
Too inane to occupy any of us beyond the time it took to read that paragraph.
And while the courts have declined to order the state to adhere to a fiscally sound pension payment schedule, they have left no doubt that the pensions are a legal liability that will have to be paid eventually.
Until the next court rules they’re not.
If this were simply a New Jersey problem there would be no point proposing a national plan. But this is truly a national problem that affects red states as well as blue states.
Yes there is little red/blue distinction but what about the corrupt/not-so-openly-corrupt distinction. New Jersey ranks high (or low) on that list too.
If state governments across the nation had to pass massive tax hikes, cut school or highway spending, or were unable to pay the pensions of middle-class retirees who had earned them, U.S. economic growth would grind to a halt and the results would be just as severe as a financial collapse.
But what if state governments across the nation had to clean up their acts? Cut out the Norcrosses and the DeCotiises and all those thousands of power brokers throughout the state that demand their gravy trains be fueled.
The program I am proposing is not a bailout, it is a loan program – one for which the federal lender will be paid back in full with interest.
At an interest rate that is supposed to generate incredible savings for the borrower?
States that wish to participate would be required to seek voter approval of both the loan and repayment plan, and their voters also would be required to establish a constitutional guarantee that their states will make the full, actuarially required contribution into their pension systems every year to assure fiscal stability.
With actuarially required contributions determined by each state’s flunky of choice.
The program would offer low-interest loans to enable states to pay off their unfunded liability, which would restore their pension systems to a sound fiscal footing, protect the pensions of middle-class teachers, police, firefighters and government workers and save hundreds of billions of dollars for taxpayers.
Or so the people who want to protect their benefits, jobs, or public contacts have assured Sweeney.