Cost of COLA Return

On a day traditionally for returning presents let’s consider the cost of a couple of items that New Jersey can expect to see return in early 2016: our governor and cost-of-living-adjustments (COLAS) on public pensions.

The cost of the former is incalculable (per PolitickerNJ):

It was the same at the Statehouse last week. On press row, PolitickerNJ asked a staffer what was going on and received a blank look in response.

“Nothing,” was the reply, mouthed almost in despair and accompanied by the explanation that Gov. Chris Christie’s absence from Trenton as he runs for president has all but ground operations to a halt.

The staffer put his head in his hands.

A lobbyist in the hallway later explained that everyone is essentially waiting around for Christie’s campaign to end so that he can show up in Trenton and start exacting payback on those who didn’t more vigorously back his national ambitions.

“Everyone knows how vindictive he is,” the lobbyist said.

But as for COLAs, we have a better idea.

Looking over a spreadsheet developed from the liability value exhibits in the official New Jersey Retirement System actuarial reports reveals that the from 6/30/05 to 6/30/09 the value of accrued benefits steadily increased by about 7%.  Then with the 6/30/10 valuation that value decreased by 8.72%.  Since the pension reforms consisted primarily of the elimination of COLAs (benefit changes impacted only the newly hired so there would be little impact and the increase in member contributions only affected the asset side) if we assumed that the 6/30/09-6/30/10 period saw another 7% increase we get a value of accrued benefits as of 6/30/14 of $165 billion instead of the $141 billion reported officially – a brand new $24 billion liability waiting for the New Jersey Supreme Court to approve.

Other things to note:

1. $24 billion is, of course, the official number using 7.9% interest.  Using GASB interest rates (per the last blog here) we can bump that up by 40% to about $34 billion.
2. $34 billion is, of course, the GASB number using interest rates that average about 5.5%.  Considering the severely underfunded status of the plans (and the interest rate adjustment necessary to account for that status) we can bump that up by another 50% to about $51 billion.
3. If the court rules that forgone COLAs need to be paid that is another $2 billion (and counting) to come up with immediately.
4. With Christie back he may have one more stupid reform idea in his holster.