Investing In Deadbeats

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.


55 responses to this post.

  1. Posted by Anonymous on August 21, 2015 at 8:25 pm

    It’s not just a NJ or any other specific State’s problem. There’s a trickle down negative impact on the National and Global economy. No chance in h*ll anything gets done in Washington with the extremist non compromising viewpoints on both sides of the asile but primarily the Tea Party antagonists.

    Bottom line, IF something could be championed it should be contingent on NJ and any other State passing Federally approved P&B reforms.


  2. Posted by Tough Love on August 21, 2015 at 8:30 pm

    Quoting … “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.”

    AND of course:

    (1) reduce the current generosity of NJ’s DB Pension Plans (both in Formulas AND provisions) by a factor of 3, to bring them all the way DOWN to a level EQUAL TO those typically granted similarly situated (in pay, age at retirement, and years of service) PRIVATE Sector taxpayers
    (2) ELIMINATE ALL retiree healthcare subsidies …. with employer-sponsored retiree healthcare subsidies all but gone in the PRIVATE Sector, THAT’S is what taxpayers should contribute toward PW’s retiree earthenware …. NOTHING.

    EQUAL … but NOT better.


    • Posted by S Moderation Douglas on August 22, 2015 at 1:07 am

      Factor of 3, now?

      Is that for everyone, or just for those overpaid janitors (and cops)?

      Are we still on track to raise the pay for all the public sector lawyers (and other undercompensated professionals)?

      Can the doctors and Lawyers keep their earthenware?

      EQUAL … but NOT better.

      It’s only fair.


      • Posted by Tough Love on August 22, 2015 at 1:14 am

        Off your meds again ?

        P.S. If Public Sector pensions are 3 times greater in value at retirement than those of their Private Sector counterparts, then YES, they should be reduced “by a factor of 3”. Too complicated for you ?


        • Posted by S Moderation Douglas on August 22, 2015 at 1:34 am

          Private-sector pensions are virtually non existent. How can you be 3 times greater than something that does not exist? It’s just a talking point….imaginary numbers to support your “opinion”.

          What happened to 23%? What happened to public sector lawyers who are undercompensated (seriously)? What happened to public sector clerks and laborers making barely over minimum wage, whose benefits you want to cut? I would like to be a fly on the wall when you present that plan to the legislature. New Jersey or California, take your pick.

          My meds are fine. Awesome, actually.


          • Posted by Tough Love on August 22, 2015 at 2:05 am

            I was being generous by comparing Public Sector pensions to the few very lucky Private Sector workers still accruing pensions in DB Plans of the type universal to Public Sector workers.

            But you’re correct …. few Private Sector workers get such benefits any longer. They get far LESS typically no more than a 3%-4% of pay “match” into a 401K Plan. Just makes the absurdly generous Public Sector pensions even MORE deserving of being FROZEN (with zero future growth).

            In NJ, it will take care of itself when it’s Plans run out of assets (in about 5 years) and the ONLY choices are MASSIVE tax increases (which won’t happen because our Elected Officials know that they will be voted out of office in the next election) or throwing the workers under the bus and finally (doing what SHOULD HAVE been done 10+ years ago) … ENDING these grossly excessive Public Sector pensions.

        • Posted by S Moderation Douglas on August 22, 2015 at 1:42 am

          Quoting Jim Reilley:
          2 days ago
          “Yes, let’s strip little old lady secretaries of their only hope of retirement after promising them for decades that it was secure.

          Not only is it immoral, it’s illegal.”

          Or vice versa.


    • Posted by Charles on August 22, 2015 at 4:12 am

      I went to work for California for $435 per month. I wanted health insurance, time off, a pension and employment stability and I got them in exchange for a salary that was 2/3rds what I would have received in the private sector. Nothing unfair here. The private sector screwed their employees. Wake up and smell the coffee TL.


      • Posted by Anonymous on August 22, 2015 at 8:42 am

        Please listen to Tender Loving (TL), he speak truth. His facts are not always right and his math would make a grammar school teacher cringe but who can argue that his heart is in the right place. Hear his call. If a government can default on all its legal obligations how much better for taxpayers. Not only pension obligations but what about debt incurred to build tunnels for vested interests in Atlantic City or ski slopes in the Meadowlands. Brilliant ideas that have gone awry but taxpayers are on the hook for. How much better for all taxpayers if New Jersey just shrugged off all obligations. Wipe the slate clean !! How much better the State balance sheet would look then. And the increase in cash flow would make credit rating agencies rejoice. Moral hazard is only the purview of low income mortgage borrowers. If only Christie would have the courage to default on all New Jersey obligations, the State’s credit rating would rise, taxpayers elated and Christie’s presidential poll numbers would soar. Then he could turn his administrative expertise to fixing national problems. How much better off the nation would be then. Go Tender Loving, go !!


        • Posted by Tough Love on August 22, 2015 at 9:26 am

          Anon, It’s quite simple ……….

          Contacts (including pensions and benefits) that are grossly excessive and clearly the result of our self-interested, vote-selling, contribution-soliciting, taxpayer-betraying Elected Officials trading their favorable votes on Public Sector pay, pensions, and benefits, for Public Sector Union Campaign contributions and election support should justifiably NOT be honored by the betrayed and beleaguered Taxpayers handed with the bill.


          • Posted by S Moderation Douglas on August 22, 2015 at 9:57 am

            Now you’re inciting the public to abrogate legal contacts?

          • Posted by Tough Love on August 22, 2015 at 10:20 am

            S Moderation Douglas,

            NJ’s fraudulently obtained Pension & benefit “promises” ?


        • Posted by Anonymous on August 22, 2015 at 1:06 pm

          he is a she, lmao


      • Posted by S Moderation Douglas on August 22, 2015 at 9:52 am

        Not to worry Charles. Anonymous is correct. TL has solved the problem. All the unskilled, high school educated workers; janitors, clerks, secretaries, laborers, etc. make about the same cash wage as their private sector equivalents.

        Unlike you, they did not take one third less cash wages, yet they still get a pension and healthcare. …..and retiree healthcare. It is not “fair”. According to EVERY major econometric study, these people are compensated much more than their private sector peers. About twenty percent more on a nationwide average. Probably more than that in California and New Jersey. At the lowest levels, they may make 40% more than their private sector peers.

        If we can take away the retiree healthcare, for instance, from every state employee who earns less than $40,000 a year, and replace his DB plan going forward with a DC 3% match, we can save BILLIONS. And they will still be no worse off than the private sector. (Don’t even get me started about job security, these people been walkin’ in high cotton for years.)

        If you are the engineer Charles, we might even save enough on these low class guys to repay you for some of the salary you sacrificed over the years. And we could give raises to all the state lawyers.

        Got a problem with EQUAL?


        • Posted by Tough Love on August 22, 2015 at 10:28 am

          Quoting ….. “All the unskilled, high school educated workers; janitors, clerks, secretaries, laborers, etc. make about the same cash wage as their private sector equivalents. Unlike you, they did not take one third less cash wages, yet they still get a pension and healthcare. …..and retiree healthcare. It is not “fair”. ”

          Yes, it’s not fair that Private Sector taxpayers (in comparable jobs) should have to pay taxes higher than they would need to be if these workers received EQUAL, but not better Total Compensation.

          Incredulously, you appear to justifying a SOCIETAL need that everyone rightfully SHOULD have a reasonably secure retirement and access to medical care via artificially increasing the compensation of ONE segment of the population (Public Sector workers) at the expense of another (Private Sector Taxpayers).

          While everyone SHOULD have ….. a reasonably secure retirement and access to medical care …. this is NOT an appropriate (or “fair”) way to accomplish it.


          • Posted by S Moderation Douglas on August 22, 2015 at 2:50 pm

            Incredulously, I wasn’t justifying anything. I was asking the logical question: why does this disparity occur in the first place? It seems to be almost universal.

            Before you flippantly “fix” something, your spreadsheet doesn’t like, take the time and effort to find out how and why it got that way to begin with.

            Do you appreciate irony? Many comments I have seen on these blogs have proposed (almost unanimously) that, when push comes to shove, and it becomes NECESSARY to cut pensions, the cuts should be progressively greater on the highest pensions. Generally, not even touching those below $50,000 a year.

            Ain’t that a hoot? The ones that, percentagewise, are the MOST overcompensated?

            It’s a world gone mad.

          • Posted by S Moderation Douglas on August 22, 2015 at 3:07 pm

            I assume this didn’t post because of an improper link. One more attempt…

            What I am saying is……..

            Get out of your spreadsheet and use your head. More and more, I frigging love Biggs for the way he described and quantified the compression of public sector compensation. It’s why I always have and always will strongly recommend his study:


            With particular attention to table 4 on page 60. In the adjacent text, Biggs points out that nationally, ……… on average……….. state workers earn twelve percent less than equivalent private sector workers. But when pension and benefits are added in (at the risk free rate) this turns to a ten percent public sector advantage …………..on average.


            You don’t need a math degree or a spreadsheet to figure this. Just a cursory glance at the chart (page 60) will show that virtually all* the public sector advantage comes from the first two columns: “HS diploma” and “some college”. Eliminate these employees (about forty percent of state workers) and the public sector “advantage” disappears entirely.

            *virtually all: the chart shows that nationwide, when pensions and benefits are added, those with a Bachelor s degree have about a two percent advantage. Biggs says this is statistically insignificant. With pensions and benefits, they make “roughly the same” as the private sector.

            Please, read the entire study. It is eye opening IMHO. If you can read the entire study and the only salient point you garner involves the figure “23%”, apply for a job with Brietbart or Fox News (or the Christie administration) you are an idiot.

            Having said that, and having demonstrated (by one of the most conservative organizations existent) that most public employees are, in fact, neither overpaid nor overcompensated; is the obvious solution to reduce the benefits of those who are already at the very bottom of the civil service compensation ladder?


            Obviously “fair” is a factor. No argument that, as a rule, a public sector janitor will make much more than a private sector janitor. Likewise with a clerk, laborer, etc.

            Before you even think about touching one dime of benefits, you better know what you’re doing and why. Why are public janitors overcompensated? Or the inverse: why are private sector janitors under compensated? It ain’t the unions, brother. Why would the unions fight to overcompensate a clerk but tell the engineer or doctor “tough luck”?

            Here’s a hint: it appears to be systemic; it’s a phenomenon that seems to have evolved independently in most civilized countries. There are studies. Read a few before you start cutting “the fat”.

      • To correctly re-phrase your comment… ” I went to work for California… so I would not have to work very hard and reap unjustified pension and medical care benefits after 30 years (of not doing very much), 10 years before all the harder working morons in the private sector could collect their comparatively paltry SS and Medicare benefits.”


        • Posted by Anonymous on August 22, 2015 at 1:06 pm

          Up your private sector pompus *SS!


          • Ah..hitting a nerve I suspect. C’mon, everyone in or out of the public sector knows the jig is up. Too many years of overstaffed, under productive bureaucracies accomplishing little to nothing and somehow justifying to themselves ridiculous comp, pension and benefits. The treasury is empty.

          • Posted by Anonymous on August 23, 2015 at 12:43 pm

            Not really just trying to keep the blog interesting…..

      • Posted by Anonymous on August 23, 2015 at 7:53 am

        That may be what you started at in 1960, but that was not your monthly salary your entire career. Be honest


  3. Posted by Anonymous on August 22, 2015 at 9:37 am

    As determined by who ?? by tender loving of course !! I agree.


    • Posted by Tough Love on August 22, 2015 at 9:51 am

      As determined by any reasonably intelligent unbiased (i.e., NOT benefiting from the Public Sector pension/benefit gravy train) observer.


      • Posted by Anonymous on August 22, 2015 at 10:58 am

        Let’s do it the Donald’s way! File for bankruptcy, screw the most vulnerable, then start over, prosper at the expense of others and under the guise of legal protection. AMERICA the Tea Party way, not!!


        • Posted by Tough Love on August 22, 2015 at 11:06 am

          It’s a LOT simpler ….. let’s just eliminate the (not justified and fraudulently obtained) Public Sector worker Total Compensation “advantage”.


          • Posted by Anonymous on August 22, 2015 at 1:07 pm

            Nah much better for the immoral but “legal” private sector goons to work their self serving magic!

  4. Posted by Anonymous on August 22, 2015 at 1:29 pm
    Everybody loves to see a jerk take a fall and this is no exception!


  5. Posted by Anonymous on August 22, 2015 at 5:20 pm

    So how many of the negative public’s bloggers are gun totting NRA members?


  6. Posted by BH on August 22, 2015 at 5:54 pm

    You’re never gonna change anything with the pensions if you continue to lump them all together. They are all different in their funding, sustainability and structure. First, you need to separate the state plans from the local plans.
    Then you need to focus on the worst of the bunch. Trying to do this in one big sweep won’t happen. It’s a waste of time and money. But hey….. What do I know. You’ve all only been discussing this crap here for decades with nothing ever changing.


    • Posted by Tough Love on August 23, 2015 at 2:45 am

      Is so obvious in EVERY comment….. Clearly you (or a family member) are (or will be) getting a LOCAL NJ Public Sector pension.

      Just love the “we are brothers” act (especially for safety workers as you seem to be) but not when it come to YOUR pocketbook. Have you told your STATE-worker Police/Fire associates how strongly you advocate to throw THEM under the bus, just so you can keep (a bit longer) all that you were promised?


      • Posted by Porgie on August 23, 2015 at 11:42 am

        Be careful dismissing the local-state distinction. Part of the governors plan has been to turn the responsibility for the teachers pension back to the local taxpayer. Part of the reason NJ instituted sales tax and increased the income tax was to fund the teachers pension system. The local taxpayer is caught up on their contributions for cops, DPW, librarians etc. Now the state wants to dump the debt for teachers and state employees onto the local taxpayer. Do you think they will repeal the income or state tax? This is the key issue.


        • Posted by Tough Love on August 23, 2015 at 1:46 pm

          What you failed to mention is that along with shifting some State Plan responsibilities to the Localities, is for LOCAL “active” and “retiree” healthcare costs to be very materially reduced (to what Private Sector taxpayers typically get from their employers), and to use THAT savings to offset the increased LOCAL pension costs.

          That said, I too believe such a shift is WAY too risky for Localities without an IRON CLAD guarantee that the healthcare “savings” offsets the increased pension costs (not just in yr 1, but every year into the future)… and with a BUILT-IN revision of the cost-shift obligation to the State if the saving falls short.

          And, I wasn’t dismissing the State-Local distinction, what I have been pointing out is that BOTH the STATE and LOCAL Plans are equally grossly excessive (vs what Private Sector taxpayers get) in the “generosity” level of Promised pensions & benefits…. the ROOT CAUSE of the problem, noting that “funding” requirements are A FUNCTION OF (and in direct proportion to) Plan “generosity”.

          There is simply ZERO justification for that EXCESSIVE “generosity” …. a SERIOUS problem INDEPENDENT of the “funding” issues and funding ratios. Very Material reductions in the future service pension accrual rates for BOTH State and Local Plans an eminently justified and are a necessary part of any realistic solution to NJ’s pension mess.


      • Posted by Anonymous on August 23, 2015 at 12:26 pm

        Yeah separate them, TPAF to local then see how much $ local governments have for P&FRS P&B contributions. Oops, guess that won’t work very well.


    • Posted by Anonymous on August 23, 2015 at 12:42 pm

      I’ll concede to your argument of not lumping State and Local reforms together IF GIT is reduced by an amount equal to current TPAF P&B appropriations.

      Without addressing the current P&B structure and the need for immediate reforms any shorfall in the respective funds would have to be attributed to underfunding/undertaxing at the respective governmental level. So when TPAF is shifted to local governments they can individually deal with it by balancing the need for reforms with property tax rates. Keep in mind local governments can file for bankruptcy and w/o significant reforms many will be forced to do so.

      Hope you enjoy the bus ride, tire tracks all across your back!


  7. Posted by PatB on August 22, 2015 at 6:29 pm

    Equality. Seems the private sector employees got the royal screw and its time for the public employees to join in the misery. What do you think will happen to all those private (and soon public) employees with little or no savings? They will keep working until they can’t, and then take comfort that public assistance will be there for them until they are old enough for SS and medicare. THEN they can live large! Big business has successfully shed their pensions onto the taxpayers, and pocketed the savings for themselves.


    • Ahhh … the accursed “race to the bottom”. Better start preparing for financial armageddon.


      • Posted by Anonymous on August 23, 2015 at 12:50 pm

        As should we all, if any intelligent individual has learned anything from recent local, national, and global economic impacts – we’ll all feel the pain at some level!


        • Posted by S Moderation Douglas on August 23, 2015 at 10:57 pm


          Remember when Butch Cassidy and the Sundance Kid were getting ready to jump off a huge cliff into the river to get away from the posse?

          Butch Cassidy: What’s the matter with you? 
          Sundance Kid: I can’t swim. 
          Butch Cassidy: Are you crazy? The fall will probably kill you. 
          Sundance Kid: Oh, sh*t… 

          Public sector, private sector, we’re all in this together. On, sh*t… Is right.


          • Posted by Anonymous on August 24, 2015 at 8:21 am

            I’ll jump if TL goes first, c.78 promise. Hey check out the latest post exchanges.

          • Posted by S Moderation Douglas on August 24, 2015 at 1:41 pm

            TL will have to jump on paper. I don’t think he lives in the real world.

            A high-pathetical leap.

    • Posted by Anonymous on August 23, 2015 at 6:25 pm

      I think they will have to move in with relatives, if they have no savings.


      • Posted by PatB on August 24, 2015 at 8:41 am

        I’m sure that a lot of commentators here would not mind taking in a needy aunt or two who would otherwise burden the taxpayers.


        • Posted by Anonymous on August 24, 2015 at 1:54 pm

          What is wrong with taking in relatives. I did and it works out well. We even have more money now for entertainment. We don’t demand taxpayers pay our way for our entire lives. Before you ask we haven’t used more SS or Medicare than we personally paid for.


          • Posted by PatB on August 24, 2015 at 3:45 pm

            Then you are genuinely a good person. My somewhat cynical view of this group is that they would not help anyone who did not save enough to cover their own retirement.

  8. Posted by Anonymous on August 23, 2015 at 1:14 pm

    Kinda irionic years ago the State ceased control of almost ALL locally administered pension funds to PROTECT them, from who hmm?


    • Posted by S Moderation Douglas on August 24, 2015 at 1:15 pm

      I don’t follow New Jersey that close. Did they cease control, or seize control?


      • Posted by Anonymous on August 24, 2015 at 1:53 pm

        Not sure of legal terminology but basically the State is the central point of enrollment and administration of almost all (very few exceptions) pension funds. Yes even the so called “local” plans. There are maybe only a couple of plans administered at the local level. John might know for sure, possibly Passiac or Union counties?


  9. Well…the federal loan/bailout scenario works for me! GM was too big to fail, as was AIG. Both got low interest loans, and both paid them back in full (with interest) and became more profitable. What is wrong with a 2% loan from the FEDS amortized over 50 years? Certainly, the State can earn more than 2% in the market so the loan would pay for itself!

    There is so much money out there it needs to earn SOME interest? And as far as paying it back, the FEDS can always offset Federal Highway Funds (or some other type of federal support) if the State does not make the payment.

    It sounds like a workable plan that has worked in the past for private sector companies. Why not the State?


    • Posted by Anonymous on August 24, 2015 at 11:51 am

      Oh gosh no only the elite financial services and investment bankers are granted such generous considerations!


    • Posted by S Moderation Douglas on August 24, 2015 at 1:23 pm

      The idea has merits, but it’s a double edged sword. It would have to come with strict conditions. (Although there are some who think the federal government should exercise more control over state pension even without the loans.)

      Some states just will not accept that loss of autonomy.


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