Frightening Totality of NJ Pension Crisis

New Jersey will suffer financial collapse when its pension funds are depleted, beginning in 2021. The Court will decide whether hundreds of thousands of retired judges, teachers, and State employees lose their pensions and are impoverished or whether some $8 billion, one fourth of the State budget, will be taken from other, already underfunded purposes.  As was true 20 years ago, most items have been covered in the press, but the frightening totality is still being ignored.

NewJerseyAlmanac.com Op-Ed

You have to go back quite a ways to find a state official going on the record with the real story on the fiscal situation in New Jersey as so many of them are complicit in the collapse. In this case it’s 35 years since Cliff Goldman served as State Treasurer and on today’s On The Record he nailed it:

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Full OTR segment, well worth a few viewings:
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Full newjerseyalmanac.com piece:

About twenty years ago, at dinner before our poker game, I was telling my friend, the columnist John McLaughlin, how New Jersey was undermining its solvency by pushing its pension obligations into the future, increasing its debt, undermining the Transportation Trust Fund, balancing its budget by raiding the unemployment fund, and so on. He arranged for me to meet with a reporter.  To each item I raised, the reporter replied that the paper had covered it.  My point was that they had to be added together to show their combined threat to New Jersey’s future.  No article came out of our meeting.

A few years later, I joined Governor-elect James McGreevey at a press conference about the $6 billion budget deficit he would soon inherit. There was no feasible combination of tax increases and budget cuts that could produce $6 billion in one year.  The reporter stopped me on the way out to say that my predictions had come true, not realizing that the full effect was yet to come.

McGreevey raised the corporate tax, but was unable to resume budgeting money to the pension funds.  Before McGreevey took office, the State budget had not appropriated money to the pension funds for five years, using borrowed money instead.  And, McGreevey had to borrow money to balance the budget.

In 1997, the Court had disregarded the Constitution and allowed the administration of Governor Christine Todd Whitman  to use borrowed money to balance its budget, thus departing from the past practice of making annual appropriations to finance state employee pensions. The payments on the debt sold in 1997 are now set to grow to almost $500 million in 2020.  So McGreevey also followed Whitman’s precedent of using debt three times before the Court finally declared it unconstitutional, but nonetheless still allowed the third debt financing to proceed.

With the approval of the Court in another case, the constitutionally required pension appropriation has not been made for twenty years. The budget gap McGreevey inherited has never been fixed.  Every governor since then has been forced to manipulate the budget to keep it in apparent balance by gimmicks, short-sighted budget cuts, and pushing huge obligations into the future, to a day of reckoning that  is now fast approaching.

For example, a tax was added to phone bills to pay for an upgrade to the 9-1-1 emergency system. The money, about $1 billion, was used to  balance the State budget instead of the upgrade.  The State borrowed money to finance annual business incentive grants until Governor Corzine stopped it.  The State settled an $8.9 billion pollution case against Exxon Mobil for $225 million, but most of that money was used to balance the budget instead of cleaning up the pollution. The same thing happened to the $355 million extracted from the chemical companies that had polluted the Passaic River.

Bonds supported by tobacco sales, coming due in 2041 but rated as low-quality “junk bond” CCC status due to the high risk of default because of the projected decline of smoking by then, were refunded to be paid off beginning in 2017 at a cost of $60 million per year for seven years in return for $90 million to help balance one budget. In effect, for a one-time budget fix of $90 million, the state assumed a $420 million liability which is now coming due and will continue as a burden on future state budgets for the next seven years.

State aid to support city police forces, fire departments, and libraries were slashed regardless of the consequences.  Support for education and public colleges declined.  The recent crash of a New Jersey Transit train in Hoboken led to the disclosure of inadequate funding and maintenance of the system.  Emergency Assistance, the last safety net for the poorest families, was severely cut.  Meanwhile, the State has amassed over $100 billion of debts to pension funds and bondholders and billions more for needed improvements like the 9-1-1 upgrade and a rail tunnel to New York, the funding for which was also used to balance the budget.

Recent stories claim that the New Jersey economy has been slowing. Except for the Newark Prudential Center arena, the Highlands, and rail lines to Camden and the Sports complex, the public investments that lead to economic growth such as county and State colleges, the medical school, interstate highways and local roads, New Jersey Transit, State parks and land preservation like the Liberty State Park, the Meadowlands, and the Pinelands, reservoirs and water supply, sewer treatment plants, and the Sports Complex were largely made from 25 to 60 years ago. New Jersey was able to do these things and still be rated AAA and have little debt and fully funded pensions. 

Real economy drivers such as done deals to bring the Philadelphia 76’ers to a new arena in Camden and to create a summer classical arts center at Waterloo Village with ballet, opera, and orchestra companies of international acclaim were killed thoughtlessly.  Later, Waterloo  Village was killed to save pennies.

New Jersey will suffer financial collapse when its pension funds are depleted, beginning in 2021. The Court will decide whether hundreds of thousands of retired judges, teachers, and State employees lose their pensions and are impoverished or whether some $8 billion, one fourth of the State budget, will be taken from other, already underfunded purposes.  As was true 20 years ago, most items have been covered in the press, but the frightening totality is still being ignored.

28 responses to this post.

  1. Posted by Anonymous on February 26, 2017 at 11:45 am

    This should be a wake up call for anyone living in the state .NJ politicians will do whatever it takes to keep the union voting for the promises that were made ..you’ve got 4 to 5 years to pack your bags and keep your assets …otherwise all your monies belongs to us….

    Reply

  2. Posted by skip3house on February 26, 2017 at 11:58 am

    Instant fix. Use facts of funding, interest each year to (Retro, too) adjust pensions to agree with facts.

    Reply

  3. Posted by Elle Brontee on February 26, 2017 at 12:02 pm

    A primary concern to all NJ residents, or it should be. Been going back and forth, actually only forth, as I get no response from Jack Ciatarelli. regarding his so called solution to this problem. Of course this is the political narrative that sounds good to people not paying attention, but to those of us following the demise of NJ, we know his talking points mean no more than the talking points of every politician running on the same nonsense. Why are the politicians not really concerned, an easy answer here, as has been the same answer throughout the great “NJ Taxpayer Rip-Off” and the rip-off by the federal government of the entire nation. All the same excuses and for all the same reasons. When the game is over, most if not all of these guys will be out of office and not affected. Same reason why Obama never addressed the $20 trillion national debt, which does not even include the federal unfunded liabilities, never mentioned in his last state of the union address, not a word regarding the debt to the taxpayers, only patting himself on the back for the incredible mess he has added to the national debt and the nation. and why? Because literally it does not affect he and his family. But to not get off topic here. The analogy is clear to you John, to those of us keeping track and the endgame is, there is no solution other than taxpayers footing the bill by continuing to reside in NJ and those that leave, will pay through an exit tax and then be gone, while those left behind will see a continuous increase in their taxes until; they have nothing left to live on and pay their own bills. Let the politician or non-politician step forward, run for office and state the true picture to those responsible for the bill the NJ politicians have forced upon us. Let the NJ version of Donald Trump tell the people the truth, that there is no solution to the promises our elected made to the unions, other than the taxpayers will be held responsible and there is no magic bullet that is going to take that debt away from those who were promised.

    Reply

    • Posted by Anonymous on February 26, 2017 at 3:19 pm

      The NJ version of Trump, his proposals (according to CBO) are not budget neutral and in fact increase the deficit. Just another swamp fox by a different name/color!

      Reply

    • Posted by State Aid Guy on February 27, 2017 at 1:49 pm

      Elle Brontree,

      Jack Ciattarelli has responded to my emails many times. If he isn’t able to respond to you personally, please consider that he has cancer, a business to run, legislative services, four kids, and is campaigning intensely.

      Is Ciattarelli’s plan perfect? Is it everything NJ needs? No, it isn’t.

      But when you compare it to his rivals’ it’s a league better than what they’ve put forward.

      Reply

      • Posted by Anonymous on February 27, 2017 at 3:55 pm

        I don’t need to know JC’s personal history. The candidate is vying for votes and to win my vote almost is not good enough. NJ has run out of time. Jack’s plan has many elements similar to others with ideas of “fixing” the broken system. When you say it isn’t perfect but it is better than most, that is your opinion and remains to be decided by others who buy into it or not. Don’t tell me how busy or stressed or whatever any candidate happens to be. My advice is then don’t run as the consign as well as the win will demand 100% of one’s efforts. My words here are not anti-JC but when I hear any “politician” spin and minimize the dire straits NJ is in as a state and with the cost of unfundef liabilities I am tired of the spin and lack of truth in where NJ and its citizens stand. I am not comparing JC’s plan to his rivals. To me, no candidate has an effective plan to undo this mess because there is no undoing it. After CC we are now 8 more years into the pension mess and along comes another player telling us the same as what did not work for CC. We are now almost a decade older and still waiting for the magic bullet. It is not happening and I believe NJ residents would appreciate an honest assessment from those who claim a fix is in site as they campaign for our vote. How about that? Honesty, a new frontier.

        Reply

  4. Posted by Eric on February 26, 2017 at 12:50 pm

    John:
    Clifford Goldman was very well respected. I did not vote for Brendan Byrne, for whom he worked, but Byrne was known to have hired qualified personnel. I voted for Ray Bateman. I hated the NJ state income tax which was relentlessly pursued by Byrne.
    When Goldman stated that the pension funds will be depleted commencing in 2021, what happens to the contributions made to the pension system by actives, and what happens to the contributions made by those who have recently retired, but have not yet consumed the total dollar amount of their contributions via retirement checks? Do these classes of people receive back their net contributions from our even-handed and ever fair-minded State of NJ?
    I know the NJ Supreme Court in Berg stated that there is no contractual right to a pension in NJ. Surprise! Therefore, there can be no violation of any Contract Clause! Surprise! You get what we decide to give you. Now go away, and don’t come back!
    Cost of living adjustments, promised, to the already retired, can be wiped away with impunity, since case law, statutes and handbooks may not be relied upon, since that would be unreasonable. What a joke! Even a unanimous App. Div. agreed with the Berg plaintiffs. So did I. I read their briefs. Also, the NJ Supreme Court rested its poorly reasoned decision upon the ancient case of Spina, decided in 1964, prior to the enactment of the non-forfeitable right statute. That is like relying upon the “separate by equal” doctrine of segregation after the Brown v. Board of Education decision became law.
    In sum, John, are all of these people screwed? Retirees. Actives. Beneficiaries of the deceased retirees? Those who contributed money with zero return, since the money will be poured down the Jersey rat hole of corrupt politicians?
    I have my guess.
    Perhaps a lawyer can answer this question.
    Thanks,
    Eric

    Reply

    • It now seems obvious that there is a set amount that will be provided by the state to pay for pension and health care benefits and, with the courts on board, anything is possible. The problem is that we are at the stage where the math does not work out as twice as much is going out as coming in for pensions. I see more changes to health care benefits to free up some money for pension payments to buy another couple of years and then mass defaults – probably around 2025 – like in Prichard, Central Falls, and these multiemployer plans where retirees get to vote in an election to approve 50% cuts to their benefits that bureaucrats decided was the only solution.

      Reply

    • Posted by boscoe on February 26, 2017 at 3:56 pm

      Between this blog and the recent NJ Spotlight articles and op/eds, there is finally a dawning realization of the dire fiscal straits that face this state from decades of promises, budgetary gimmicks and reality-avoidance quick fixes. For people who have toiled in these fields for a long time, this comes as no surprise. The only surprise is the vast, seemingly endless array of denial techniques sold to the state of New Jersey over the years by financial and actuarial “consultants” who are not having to wait in line to get paid for their short-sighted advice.

      This is not a political issue, in the R v. D sense. Both parties have played this game of hide the invoice. And public employees who entered employment based on whatever compensation, benefits and personnel policies were in place at the time are also not to blame. The unions? Maybe save some wrath for them, but they did what unions do, represent their members’ interests. Remember, retirement benefits are not subject to formal collective bargaining. No, this is a failure of the elected political system to deal with the consequences of disingenous political and fiscal decisions (more often non-decisions).

      It has been aided by the fact that public finance — and pension finance in particular — is a complex field. Despite the urging of some of our more righteous commenters, a large governmental entity cannot operate on a strict pay-as-you-go basis. It doesn’t work for capital projects, it doesn’t work for deferred obligations payable in the distant future, it doesn’t work for cash flow. Having said that, someone needs to be the adult in the room. And since no elected official likes to say no to the perceived needs of a constituency or yes to the pain of paying for alleviating those needs, you don’t find too many profiles in courage among elected officials.

      Cliff Goldman was a smart guy and retains a pretty good institutional memory of the giant and baby steps that got us here. The detail are in the weeds but they do not shower honor on too many of our representatives.

      One specific point to Eric: the NJ Supreme Court has never stated, not in Berg or anywhere else, that “there is no contractual right to a pension in NJ.” Berg was about contractual rights to cost-of-living adjustments and the court went through some gyrations to distinguish between either contractual/statutory rights to a pension (based on P.L. 1997, c.113) and rights to a COLA, since the Pension Adjustment Act stands outside of the basic pension statutes. The court has also said that the Legislature cannot be compelled to make annual pension contributions to the systems in line with actuarial projections. But they have not dealt with the core issue (unlike the Illinois court) and are undoubtedly not looking forward to hearing it one of these years.

      Reply

      • Posted by skip3house on February 26, 2017 at 4:10 pm

        Dunstan McNichol, StarLedger, was my bright light on this NJ Pension underfunded fact when I ran for a NJ State office about 15 years ago. Unfortunately, ‘Dusty’ passed away just a few years later, or would likely be in the thick of this.
        I was interviewed then by a NJEA committee, brought up this unfunded issue, and was told by the committee leader, a math teacher, ‘…it is better to have a promise than nothing.’
        Here we all are, …now…..WHAT ?

        Reply

        • Posted by truesally on February 26, 2017 at 4:41 pm

          “it is better to have a promise than nothing.’….. that’s exactly what it just might be worth in the future ………Priceless absolutely priceless

          Reply

  5. I’ve been reading this website and others for over ten years…the checks are still coming, cadillac health plans still being provided…is it really a matter of WHEN the pension funds become depleted or IF the funds become depleted….I’m sure there will be many more schemes at the expense of the tax payers to keep the game going into eternity….

    Reply

  6. Posted by Javagold on February 27, 2017 at 11:52 pm

    I try to explain the tsunami wave that is headed this way. I tell people around me the best thing they can do is stop paying your mortgages NOW. They can Save the many many months of payments. The banks will finally come to realize that the property taxes are the death of New Jersey. And believe me the banks are the one cabal that can put the public union parasites in the ground where they belong. Yet, no one believes me and thinks I am crazy to think this way. It’s a shame most people no longer play the game of chess. Stupid, foolish, scared sheep they have become. They can go broke and eventually lose their homes to property tax increases or start saving their money and let the banks vs public unions fight it out in the octagon. Pass the popcorn.

    Reply

    • Posted by Jesse on February 28, 2017 at 9:01 am

      Have you stopped paying your mortgage???

      Reply

    • Posted by Anonymous on February 28, 2017 at 10:44 am

      If too stop paying mortgage real estate taxes would still be owed and would be taken out if any and all remaining assets. However I do know people who have been living in their foreclosed homes for years.,. Sucks all around. So glad we sold when we did

      Reply

      • The bank. Really they are nothing more than a Servicer. But that’s a whole different story of corruption. Will continue to pay the property taxes each quarter. That is why If the people stuck together eventually the banks and the public unions would have a corruption showdown. Worse that could happen if everyone sticks together I buy your foreclosure for $2. You buy mine for $2. But you all would rather peddle harder and harder each year. Good luck with that.

        Reply

        • Posted by skip3house on February 28, 2017 at 1:51 pm

          How about this….Switch school property tax (62%) residential to broad based-on-ability-to-pay NJ income/…?…tax, allowing the more well off to decide to support with overall somewhat higher $$, or pay for private schools as public schools will fail their mission, adding curse of less civilized to their world?

          Reply

  7. Posted by George on February 28, 2017 at 2:19 am

    The Teamsters Local 707 fund, beset with the same financial problems as central states fund and the New York State Teamsters Pension Fund — officially went broke this month after suffering nearly 20 years of looming bankruptcy.

    Its 4,000 retirees are now dependent on a monthly payout from the federal Pension Benefit Guaranty Corp. But that only covers about a third of what the ex-truckers were promised. Local 707 retirees saw their pensions slashed from as high as $3,500 in some cases to less than $1,000.

    “The problem is, PBGC is only funded itself for another 10 or so years,” says Amsden. “Central States Pension is so big, if we go under ourselves, we will swamp PBGC. It can’t cover us all.”

    http://www.nydailynews.com/news/national/retired-teamster-heads-save-crumbling-retirement-fund-article-1.2982765

    Reply

  8. Posted by PurpleLogic on March 2, 2017 at 5:15 pm

    As someone who lives across the country I have no ax to grind with anyone in New Jersey. I find it puzzling how some think this is mostly a partisan issue. Follow pensiontsunami.com which links to articles like these across the country. The one thing that is clear from this article and so many others is that both parties are continually ignoring or deliberately down playing the pension funding problem and putting it off.

    My own bias would lead me to believe that blue states and blue cities (ie New Jersey, Illinois, Chicago) are somewhat more likely to become insolvent due to pension costs, there are plenty of red jurisdictions (ie Kentucky, Dallas) that are near term disasters. All it takes is promising too much and setting aside too little, something both parties excel at.

    Of course a large number of smaller cities we never hear about may default on either their bonds or pensions before these poster children.

    Reply

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